Investors Buy Rosneft Credit-Linked Debt as Ukraine Crisis Eases

Securities tied to the debt of OAO Rosneft accounted for the biggest proportion of credit-linked notes sold this month as demand for Russian corporate debt recovers amid ebbing tensions in Ukraine.

Investors bought $119 million of securities in dollars and rubles linked to Russia’s largest oil producer, about a quarter of credit-linked securities sold so far this month, according to data compiled by Bloomberg. The yield on Rosneft’s 4.199 percent bond due March 2022 has fallen 6 basis points since the start of June to 5.25 percent after reaching a record 7.02 percent on April 25, the data show.

Demand for credit linked to Russia is returning as peace talks this week showed signs of progress in resolving the three-month conflict. Rosneft’s bond yields rose after violence broke out in Ukraine and the U.S. announced sanctions against people close to Russia President Vladimir Putin, including the Moscow-based company’s Chief Executive Officer Igor Sechin. The sanctions didn’t extend to Rosneft, which is state-run.

“Nearly all Russian corporate bonds are trading at or higher than February levels,” Alexey Bulgakov, a fixed-income analyst at Sberbank CIB, wrote in an e-mail. “The perceived risk of more tangible sanctions against Russia and Russian legal entities from the West has been reduced.”

ING Groep NV was the biggest seller of structured notes linked to Rosneft, with issuance of $113 million, the data show. The securities pay coupons ranging from 10 percent for three-month notes in rubles to 3.3 percent on dollar notes maturing in February next year.

Adrian Simpson, a London-based spokesman for ING, declined to comment on the bank’s debt sales.

Rosneft has “strong assets, which translate into strong cash generation,” said Dmitry Dudkin, head of fixed-income research at UralSib Capital in Moscow.

Credit-linked notes can have higher yields and tailored maturities that may not be available in the bond market. Buyers of the securities, which include private banks and wealthy individuals, typically suffer losses if the issuing bank or the linked entity defaults.

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

To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net Tom Freke, Jennifer Joan Lee

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