Singapore Lures Russia Borrowers as Falling Yields Lead VTB to Double Sale
Andrei Kostin, chief executive officer of VTB Group
Alexander Zemlianichenko Jr/Bloomberg
Andrei Kostin, chief executive officer of VTB Group, pauses during a meeting in St.Petersburg.
Andrei Kostin, chief executive officer of VTB Group, pauses during a meeting in St.Petersburg. Photographer: Alexander Zemlianichenko Jr/Bloomberg
VTB Group, Russia’s second-largest bank, is pressing companies in the country to seek financing in Singapore after doubling its own bond sale in the Asian nation.
VTB of Moscow sold 400 million Singapore dollars ($295 million) of two-year notes on July 30 at a yield of 4.2 percent, according to data compiled by Bloomberg. The company’s U.S. dollar bonds due in 2012 yield 4.6 percent while the bank’s ruble debt due in 2013 yields 7.7 percent. VTB had initially sought 150 million Singapore dollars, said Andrey Solovyev, the London-based head of debt capital markets at VTB Capital, the investment banking unit that arranged the deal.
“We have already held preliminary talks with some companies and now, after such a successful placement, these talks are likely to be more active,” Solovyev said in a telephone interview after the sale.
Singapore dollar bond sales more than doubled this year to $9.8 billion from $4.5 billion in the same period of 2009 as issuers take advantage of tumbling borrowing costs, data compiled by Bloomberg show. The Singapore government’s benchmark 3.5 percent dollar bonds due 2012 yield 0.437 percent today, near a record low, compared to 0.82 percent in January. The yield on Singapore Airlines Ltd.’s 4.15 percent notes due December 2011 tumbled to a low of 1.21 percent today from 3.459 percent a year ago and 2.655 percent in January, according to the data.
‘More Space’
“There is clearly more space to sell top-rated Russian corporate debt to the Asian institutional and retail client base in Singapore and Hong Kong, as spreads among top-rated Asian corporates trade lower and lower,” said Luis Costa, emerging- market debt strategist at Citigroup Inc. in London.
VTB’s sale is the first in Singapore by an issuer outside the Asia Pacific region since September when Rotterdam, Netherlands-based tank terminal operator Royal Vopak NV issued 210 million Singapore dollars of five-year bonds, data compiled by Bloomberg show. VTB’s is also the only Russian bond to target Asia investors other than a Japanese yen sale by Moscow-based gas company OAO Gazprom in 2007.
The Russian bank is also considering selling yen- denominated bonds and may sell debt in Hong Kong dollars as early as this year to diversify its sources of funding, Herbert Moos, VTB Group’s deputy chairman, said in a telephone interview today.
Singapore investors bought 82 percent of the VTB securities and Hong Kong buyers accounted for 7 percent, Solovyev said. Oversea-Chinese Banking Corp Ltd. in Singapore co-managed the sale with VTB.
‘Advantageous’
The sale was “advantageous not only from the point of view of widening the investor base, but from the standpoint of lower funding costs,” Solovyev said. “Other Russian issuers are likely to follow us.”
VTB debt is rated Baa1 by Moody’s Investors Service, its third-lowest investment grade rating, and one step lower at BBB by Standard & Poor’s, the same level as the Russian government.
“Clearly, this market is limited to investment-grade issuers, but there is no shortage of them in Russia,” Solovyev said.
The extra yield investors demand to hold Russian debt rather than U.S. Treasuries fell 14 basis points to 225 today, according to JPMorgan EMBI+ indexes. The difference is larger than the spread of 145 for debt of similarly rated Mexico and 205 for Brazil, which is rated two steps lower at Baa3 by Moody’s.
The yield spread on Russian bonds over Treasuries is 48 basis points below the average for emerging markets, down from a 15-month high of 105 in February, according to JPMorgan indexes.
Default Swaps
The cost of protecting Russian debt against non-payment for five years with credit-default swaps fell 2 basis points to 162 on July 30 and dropped 33 for the month, according to data compiled by data provider CMA. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Russian credit-default swaps cost the same as contracts for Turkey, which is rated four levels lower at Ba2 by Moody’s Investors Service. That difference has narrowed from 40 basis points on April 20.
The ruble gained 0.6 percent to 30.0950 per dollar in Moscow trading today, its strongest closing level since May 13. That added to last month’s 3.2 percent advance. Non-deliverable forwards, or NDFs, which provide a guide to expectations of currency movements as they allow foreign investors and companies to fix the exchange rate at a specific level in the future, show the ruble at 30.2413 per dollar in three months.
The yield on Russia’s dollar bonds due in 2020 fell 23 basis points to 4.667 percent, the lowest level since they were sold in April.
Rising Currency
VTB has a branch in Singapore with more than 30 staff to serve corporate clients, Solovyev said. The three-month Singapore interbank offered rate, or Sibor, fell to 0.46583 percent today from a 52-week high of 0.54667 percent on May 27, according to the city-state’s Association of Banks.
The Russian lender will use some of the funds raised to help finance its Singapore operations and will convert the rest into U.S. dollars and rubles, according to Moos.
The country’s relatively low costs may attract international borrowers, according to Thomas Harr, a Singapore- based currency strategist at Standard Chartered Plc. The Singapore dollar has climbed 3.7 percent against the greenback this year.
“For a foreign company with a representative office or operations here, issuing Singapore dollar bonds makes perfect sense from an asset or liability standpoint,” said Brayan Lai, a Hong Kong-based credit analyst at Credit Agricole CIB. “The Singapore government has been trying to deepen the Singapore dollar bond market to invite more capital inflows and to position Singapore as a financial center.”
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net Katrina Nicholas in Singapore at knicholas2@bloomberg.net
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