Comment by Andrey Solovyev, Global Head of DCM at VTB Capital, for Bloomberg
Thursday, 2 October
Russian banks need dollars, and there may be no easier place to find them than at home.
With sanctions driving the cost of swapping rubles for dollars to a record, OAO Sberbank and OAO Gazprombank said they’re weighing selling bonds in foreign currencies to Russians as a source of cash for domestic companies. Individuals hold a net $75 billion in such deposits at the nation’s lenders, central bank data show.
Being locked out of global capital markets because of the conflict in Ukraine is raising the stakes for the country’s lenders as companies including OAO Rosneft face $17.6 billion of dollar-denominated debt maturing before the end of the year, according to data compiled by Bloomberg. Russian lenders would join companies from Venezuela and Argentina, who have tapped their citizens for foreign currency as overseas sources dried up.
“This is one of the only ways for Sberbank to get its hands on dollars at the moment,” Viktor Szabo, who helps oversee $13 billion in emerging-market debt at Aberdeen Asset Management Plc, said by phone from London yesterday. “Russian corporates have dollar maturities and there is a massive shortage of dollar liquidity in the banking system.”
Sberbank and Gazprombank were among companies named under U.S. and European Union sanctions since July over the conflict in Ukraine, where western allies accuse Russian President Vladimir Putin of stoking separatist unrest.
Sberbank said Sept. 25 it was increasing its domestic- borrowing plan by 112 billion rubles ($2.8 billion), including the option of selling debt in dollars, euros and Swiss francs.
The next day, Gazprombank said its board was considering local placements of exchange-traded debt, including in foreign currencies.
The rate on a five-year ruble-dollar basis swap reached negative 280 basis points yesterday, the least since at least 2006 when Bloomberg began compiling the data. Negative rates signal that traders will pay a premium to obtain dollars.
“The key idea is to hedge against some black swan event,” Dmitry Postolenko, a money manager at Kapital Asset Management in Moscow, said by phone Oct. 1, referring to Sberbank. “They want to ensure they have enough dollars for future transactions.”
Rosneft, Russia’s biggest oil company, faces a $12.7 billion loan payment in December, while Sberbank has 400 million Swiss francs ($419 million) of four-year notes maturing next month. Gazprombank has $1 billion of debt due Dec. 15.
Selling foreign notes at home will help banks lengthen their debt maturities, Ogeday Topcular, a money manager at Ram Capital SA in Geneva, said by e-mail yesterday. “With these bonds, they can match their loan-book duration. Usually deposits are shorter duration.”
Russia’s central bank has bolstered efforts to improve funding conditions, including a plan announced yesterday to auction foreign-currency repurchase agreements within “several weeks.” It added 2 trillion rubles in June to a program to help lenders meet refinancing needs.
Venezuelan oil producer Petroleos de Venezuela SA sold $5 billion of bonds due 2024 in the local market this year, paying 6 percent after being effectively locked out of international credit markets amid concern the country will default. The yield on Sberbank’s June 2019 dollar bond increased 10 basis points to 5.87 percent yesterday, the highest since Sept. 2.
Sberbank may have difficulty luring buyers because the local market is “not very big,” Olga Budovnits, a credit analyst at Union Bancaire Privee in Zurich, said by phone on Oct. 1. “Even if this transaction happens, I don’t think it will be a long-term source of dollars for all companies because the market is very shallow.”
Russian exporters with big foreign-currency reserves such as OAO Surgutneftegas and OAO GMK Norilsk Nickel could be among buyers for the debt, according to Kapital’s Postolenko.
Investors keeping dollars in low-yielding bank deposits may also be interested, Andrey Solovyev, the global head of debt capital markets at VTB Capital in Moscow, said in an interview on Oct. 1. “If there will be corporate bonds which will provide a higher yield, then I’m sure that a part of private cash will go into those bonds,” he said.