Trust Bank, the Russian lender whose products are advertised by actor Bruce Willis, faces investor skepticism in its bid to sell perpetual bonds to replenish capital.
The lender, once part of jailed oil tycoon Mikhail Khodorkovsky’s business empire, is in talks with the central bank about selling the bonds in rubles this year, Fedor Pospelov, chairman of Trust’s management board, said in an e-mailed statement yesterday. State-backed VTB Group sold $1 billion of perpetual bonds in July last year at 9.5 percent, which will probably be at the low end of the sale by Trust, Pospelov said.
“These bonds are very risky,” Alexander Losev, chief executive officer of Sputnik Asset Management in Moscow, wrote in e-mailed comments yesterday. “There would need to be a huge premium to VTB.”
Trust Bank is joining Russian lenders including VTB, OAO Sberbank and ZAO Russian Standard Bank offering bonds that bolster their capital positions before so-called Basel III rules aimed at reducing bank risk take effect at the start of next year. VTB’s yield was 107 basis points below similar bonds from Banco do Brazil SA on Aug. 30, the biggest discount since the debt was sold, data compiled by Bloomberg show.
Moody’s Investors Service withdrew Trust’s Caa1 rating, the fifth-lowest non-investment grade ranking, at the lender’s request in 2011.
The yield on the perpetual bonds from VTB, which is rated Baa2 by Moody’s, fell 99 basis points since their sale to 8.52 percent by 6:27 p.m. in Moscow today. The rate on January 2024 subordinated bonds sold by billionaire Roustam Tariko’s Russian Standard fell four basis points since their sale in July to 11.32 percent today.
Trust has used the Die Hard, Armageddon and Moonlighting star to front its advertising in Russia since 2010 and says his image lured 11 billion rubles ($330 million) more than planned in deposits in the month after the campaign began. Willis replaced Russian weightlifter and actor Vladimir Turchinsky, who died in 2009.
“We understand that Trust is not VTB, and must provide a premium compared to a state bank,” Pospelov said. “Just how big this premium should be is up for discussion. We have a pretty good understanding of the limits, from 9.5 percent rising up to a maximum of 11 percent.”
Perpetual bonds pay more than securities with set maturities because issuers must compensate investors for the risk of holding notes that may never be redeemed.
“There is a market for this debt, but it’s not that broad or tradeable yet,” Neil Withers, the head of investor relations at OAO Promsvyazbank, said by phone. Promsvyazbank sold $120 million of perpetual bonds in pounds, euros and dollars through a private placement in January at a coupon of 9.5 percent, Withers said. The lender is ranked Ba2 at Moody’s, its second-highest non-investment grade.
Russia is rated one level higher than VTB at Baa1 at Moody’s, the third-lowest investment grade. The yield on its dollar bond maturing in March 2030 rose one basis point to 4.45 percent. The extra yield investors demand to hold Russian debt rather than U.S. Treasuries fell 11 basis points to 230, according to JPMorgan indexes.
Trust Bank may need to pay more than the 11.5 percent rate on Russian Standard’s subordinated bonds, according to Mikhail Nikitin, a credit analyst at VTB Capital, said yesterday by phone.
“I am concerned that there is no demand for these instruments,” he said.