The risk of sanctions targeting Russian banks over the Ukraine crisis is failing to incite fear in bondholders of lenders including OAO Sberbank and VTB Group.
The extra yield investors demand to hold the October 2022 dollar bonds of Sberbank, Russia’s biggest lender, over similar-maturity sovereign debt has retreated 36 basis points since soaring to a eight-month high of 209 on April 28, according to data compiled by Bloomberg. While Russian company bonds jumped 3.8 percent this month, the best result in emerging markets, they’ve lagged behind most developing nations since February, the data show.
Even as separatists in east Ukraine voted for independence on May 11, Russian President Vladimir Putin helped spur a market rally last week after urging the poll be delayed. The debt of state-controlled Sberbank and VTB, the second-largest bank, rose the most since the securities were sold on bets his stance would reduce the scope for the U.S. and the European Union to expand sanctions sufficiently to undermine the lenders.
“Current price levels for the large state-owned Russian banks provide a good valuation buffer against any worsening in their fundamentals,” Victoria Harling, a money manager at Investec Asset Management Ltd., which oversees about $110 billion, said by e-mail on May 12. “If sanctions are indeed imposed at some point, there will probably be some forced-selling in the bonds.”
Russia’s lenders have faced the toughest credit conditions since the recession in 2009 as Putin’s incursion into Crimea in March cut off their access to global debt markets and pushed the $2 trillion economy toward recession.
Sberbank has $2.7 billion in debt payments due in November and VTB, set to post biggest drop in annual profit in five years, according to estimates compiled by Bloomberg, faces a $3.1 billion loan maturing in July. Yields on Sberbank’s notes climbed to a record 7.43 percent on April 28, while VTB’s October 2022 yield peaked at 8.18 percent in March. Industry loan growth to individuals slowed to a three-year low of 28 percent in February, central bank data show.
“If the situation will go on much longer or the sanctions will get harder, the risk for bondholders will increase,” Peter Varga, who manages $750 million in emerging-market corporate bonds including Sberbank debt at Erste Sparinvest in Vienna, said by e-mail on May 9.
Sanctions should be broadened to include Russian banks, U.S. House speaker John Boehner said on May 11. The EU is considering broad economic penalties should Russia disrupt the Ukrainian presidential election scheduled May 25.
Russian bank debt has “good catch up potential” after missing gains of global peers this year, Steven Dashevsky, who manages the $50 million D&P New World Special Situations fund, including Russian bank debt, said by e-mail from London May 12.
The Bank of America Merrill Lynch Global Banking Index has returned 3.1 percent in 2014, pushing its yield to 2.15 percent yesterday. That compares with 6.33 percent and 6.94 percent for Sberbank and VTB’s debt at 12:24 p.m. in Moscow.
“Russian bank bonds have sold off so much, there’s an opportunity now as the yields are high and provide an attractive return in light of the possible escalation of sanctions,” Dashevsky said. Greater stability in Ukraine is needed to see a “proper” rally, he said.