Russia Banks Flock to Foreign Debt Market as Deposits at Record
Russia's President Dmitry Medvedev
Norm Betts/Bloomberg
The nation’s banks have sold $8.6 billion of foreign-currency debt so far this year, up from $1.9 billion in the same period of 2009, according to data compiled by Bloomberg. The.
The nation’s banks have sold $8.6 billion of foreign-currency debt so far this year, up from $1.9 billion in the same period of 2009, according to data compiled by Bloomberg. The. Photographer: Norm Betts/Bloomberg
Russian banks are stepping up international bond sales after relative corporate borrowing costs fell to their lowest level in three months and record deposits increased the allure of the lenders’ debt.
Bank of Moscow began offering 350 million Swiss francs ($333 million) of 4.5 percent bonds due 2013 last week, following issuances by OAO Sberbank, VTB Group and OAO Gazprombank in the past month. The yield difference for Russian company debt compared with government bonds sank to 91 basis points on Aug. 5, the lowest since April 27 and down from 942 in October 2008, according to JPMorgan Chase & Co. indexes.
The nation’s banks have sold $8.6 billion of foreign- currency debt so far this year, up from $1.9 billion in the same period of 2009, according to data compiled by Bloomberg. The issuances are benefiting from increased inflows of deposits, which totaled an all-time high of 8.4 trillion rubles ($274 billion) in the first half of 2010, 12.7 percent more than last year, the Deposit Insurance Agency said in a report Aug. 12.
“From the bondholder’s point of view, Russian banks’ debt carries fewer risks because of the increasing flow of deposit funds,” said Maria Semikhatova, a banking analyst at Citigroup Inc. in Moscow. “People have become more cautious about spending and boosted savings, giving banks a stable source of financing.”
Banks accounted for 65 percent of total corporate international debt sales from Russia this year, up from 20 percent last year and 52 percent in 2008, according to data compiled by Bloomberg.
Sberbank Sale
Sberbank of Moscow increased a $1 billion June offering of five-year dollar bonds by $500 million on July 27. The securities were priced to yield 369 basis points, or 3.69 percentage points, over U.S. Treasuries, according to data compiled by Bloomberg. The spread narrowed to 341 today, the data show. Moscow-based VTB, the country’s second-biggest bank, increased its sale of three-year 4 percent bonds to 400 million Swiss francs on Aug. 4.
Gazprombank raised $500 million from its 6.25 percent coupon bonds due December 2014 last month that were priced to yield 455.5 basis points over Treasuries. The spread narrowed to 435.90 today. Bank of Moscow’s Swiss franc bonds were priced to yield 379 basis points over mid-rate swaps, according to Bloomberg data.
The extra yield investors demand to hold Russian debt over U.S. Treasuries rose 6 basis point to 232, according to JPMorgan indexes. The yield spread on Russian bonds was 51 basis points below the average for emerging markets on Aug. 13.
Ruble Gains
The ruble was little changed at 30.5576 per dollar. Non- deliverable forwards, or NDFs, which provide a guide to expectations of currency movements and interest-rate differentials and allow companies to hedge against currency movements, show the ruble strengthening to 30.7702 per dollar in three months.
The yield on Russia’s dollar bonds due in 2020 fell 2 basis points today to 4.625 percent. The country’s ruble notes due November 2014 rose on Aug. 13, reducing the yield 2 basis points to 6.82 percent.
The cost of protecting Russian debt against nonpayment for five years using credit-default swaps fell half a basis point to 164.5 today, according to data provider CMA. The contracts 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.
Financial Crisis
Russia credit-default swaps cost 3 basis points less than contracts for Turkey, which is rated four levels lower at Ba2 by Moody’s Investors Service. That difference has narrowed from 40 on April 20.
Confidence in Russia’s financial institutions has improved after President Dmitry Medvedev pledged more than $200 billion to keep banks and companies afloat, following the collapse of Lehman Brothers Holdings Inc. in 2008 and the seizure of global credit markets. Twelve years ago, many of Russia’s largest banks collapsed in the wake of the government’s $40 billion domestic debt default on Aug. 17, 1998 and currency devaluation.
Russia’s economy expanded 5.2 percent in the second quarter, accelerating from 2.9 percent growth in the first, after a record 7.9 percent contraction last year, according to government data.
Safer Investments
The 12.7 percent growth in bank deposits in the first six months of this year outpaces the 9.9 percent increase a year earlier, according to the Deposit Insurance Agency, which was mandated by law in 2008 to support failing lenders. The total amount of deposits may jump to 9.7 trillion rubles this year, the agency said. Deposits have increased every month since March 2009, climbing 3.2 percent in June for the biggest jump this year, central bank data show.
Households consider bank accounts safer places to leave their money than in equity or property markets, Citigroup’s Semikhatova said. The Micex equity index is down 0.7 percent so far this year, after more than doubling in 2009, while Moscow property prices have fallen 28 percent from their 2008 peak, according to Moscow-based Indicators of Property Market.
Falling Rates
“Retail accounts and deposits are the main and the fastest-growing source of liabilities,” said Mikhail Zadornov, a former finance minister and head of VTB-24, the retail lending arm of Russia’s second biggest bank. “Incomes are rising, people are still saving more than they did before the crisis.”
The surge in deposits and record low central bank interest rates are helping push savings rates lower. Deposit rates have dropped to an average 8.78 percent at the start of August among the top ten banks, down from 14.85 percent in July last year, when central bank data began. Policy makers left their key refinancing rate at a record low 7.75 percent for a second month on July 30 after 14 cuts since March 2009, when the rate was 13 percent.
“The massive inflow of deposits is good for banks because it allows them to sharply cut rates on deposits and attract more and more cheaper funding,” said Maxim Oreshkin, chief strategist for Russia and the Commonwealth of Independent States at Credit Agricole SA in Moscow.
To contact the reporter on this story: Paul Abelsky in Moscow at pabelsky@bloomberg.net.
Rate this Page