OAO Sberbank, Russia’s largest bank, is considering following rival VTB Group by borrowing in Asia to explore new sources of funding.
State-run Sberbank is weighing a “modest issue” of Singapore dollars and other Asian currencies this year, Alexander Morozov, deputy chairman of the management board, said in a phone interview on April 5. The extra yield investors demand to hold the bank’s bonds due October 2022 over similar debt sold by Turkish lender Turkiye Garanti Bankasi SA, ranked the same at Fitch Ratings, fell nine basis points this year, according to data compiled by Bloomberg.
Lenders from junk-rated ZAO Russian Standard Bank to state development bank VEB have issued debt this year in currencies including the yuan and euro to expand their funding bases. While Sberbank sold its debut bonds to international investors in Turkish lira last quarter, VTB first sold securities in Singapore dollars in 2010.
“Sberbank is trying to open itself new international markets,” Dmitry Dudkin, head of fixed-income research at UralSib Financial Corp. in Moscow, said yesterday by e-mail. It’s also an “attempt to diversify the funding base to new investors such as private banks and retail investors,” he said.
Sberbank plans to issue less than last year’s total debt of $9 billion in 2013, Morozov said. The bank, based in Moscow, will consider tapping a program for 500 billion rubles ($16 billion) of domestic notes should there be demand, he said.
The ruble strengthened for a fifth day today, adding 0.3 percent against the dollar to 30.9160 as of 11:32 a.m. in Moscow. The yield on local currency government bonds due June 2017 dropped two basis points to a record 6.01 percent. Russia’s dollar bonds due in April 2042 yielded 4.46 percent, compared with 4.85 percent at the end of last month.
VTB and OAO Russian Agricultural Bank, which both share the state’s BBB investment-grade rating at Fitch, were joined in selling yuan-denominated bonds in the first quarter by billionaire Roustam Tariko’s Russian Standard. The yield on VTB’s three-year yuan bonds due October 2015 has dropped two basis points, or 0.02 percentage point, this year, compared with a decline of 32 basis points for its debt denominated in Singapore dollars and due July 2015.
VTB may return to debt in the Singapore dollar and the yuan this year, the Prime news service reported on April 2, citing Chief Financial Officer Herbert Moos.
Investors are not focused on Russian debt in euros or dollars, according to Andrey Lifchits, a money manager at Spectrum Partners Ltd. in Cyprus.
“Asian investors can be more hungry,” he said in e-mailed comments yesterday. “We have a real lack of liquid emerging-market bonds in some Asian currencies.”
While Russian banks have issued debt in Singapore dollars and yuan, no lender from the county has sold bonds in yen, according to data compiled by Bloomberg. OAO Gazprom, Russia’s biggest company and natural gas exporter, sold a five-year bond in the Japanese currency in 2007.
Demand for securities in Asian currencies depends on there being a “deep institutional base,” Mikhail Nikitin, a senior credit analyst at VTB Capital in Moscow, said yesterday.
“The market is not that deep and will not sustain bigger demand without pushing the interest rate up,” he said by phone.
The extra yield investors demand to hold Russian debt rather than U.S. Treasuries fell three basis points to 187, according to JPMorgan Chase & Co. indexes. The difference compares with 161 for debt of Mexico and 173 for Brazil.
Russian credit-default swaps were little changed at 145 basis points, according to data compiled by Bloomberg. The swaps cost 11 basis points more than Turkey, which is rated one step lower by Fitch at BBB-. The contracts pay the buyer face value in exchange for underlying securities or the cash equivalent if a government or company fails to adhere to its debt agreements.
Sberbank is a “pick among eastern European credits,” Enrico Zanollo, a managing director who holds Sberbank debt due in 2013 at Granite Investment AG in Zurich, said in e-mailed comments yesterday. Investors are interested in a further diversified funding strategy, he said.
“I would not rule out interest in Sberbank’s issues in Asian currencies like the Singapore dollar or Chinese yuan with shorter or intermediate maturities,” Zanollo said.