Russian Structured Note Issuance Jumps to Highest in Three Years

Sales of structured notes linked to the credit of Russian companies climbed to the highest in three years last month, as investors bet the country’s economy could weather emerging-market turmoil and the crisis in the Ukraine.

Issuance of securities tied to banks, energy and infrastructure companies such as VTB Bank OJSC (VTBR) and Russian Railways JSC climbed to $101.8 million in February, six times the total sold a year earlier and a 52 percent increase from January, according to data compiled by Bloomberg.

The political crisis in Ukraine, combined with economic turmoil in China, Turkey and Argentina to spur an emerging market selloff. The cost of insuring against losses on Russian sovereign debt jumped 35 basis points in January to 202.8 basis points and closed at 216.8 basis points on March 6, according to Bloomberg data.

“Russia is a huge economy, very diversified, strong,” said Pawan Gupta, managing director and head of emerging market structuring for Europe, the Middle East and Africa at ING Groep NV in London. Buyers think tensions “will ease” and that the sell-off on Russian assets “was overdone,” offering a good entry point for new investments, he said.

The securities issued in February were denominated in U.S. dollars, Canadian dollars, euros and Czech koruna, so returns won’t be hurt by volatility in exchange rates for the Russian ruble. The currency lost 3.3 percent of its value against the U.S. dollar during the past month.

Gazprom Notes

ING closed the sale of $10 million of securities linked to VEB-Leasing OAO on March 4 while Societe Generale SA said that it’s issuing 5 million euros ($6.9 million) of notes tied to the debt of Gazprom OAO (OGZD) on Feb. 28, according to data compiled by Bloomberg. Murray Parker, a spokesman for Societe Generale in London, declined to comment on the notes.

UBS AG is selling $14.3 million of range-accrual Russian ruble notes on Rosneft OAO (ROSN) and VEB-Leasing OAO,according to Dominik Von Arx, a London-based spokesman for the bank. The notes pay coupons of more than 9 percent if the ruble doesn’t depreciate further against the U.S. dollar.

“We had a couple of requests in the last two days from investors interested in structured notes linked to single names or baskets of Russian corporates,” Gupta said.

Average yields on Russian corporate bonds rose 42 basis points on March 3 to 6.25 percent, the highest since June 25, and decreased to 6.22 percent on March 6, according to JPMorgan Chase & Co. index data.

To contact the reporter on this story: Luca Casiraghi in London at lcasiraghi@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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