OAO Sberbank is awaiting the market response to plans for selling a euro-denominated bond as tension flares between Russia and Ukraine.
Russia’s biggest lender aims to sell about 1 billion euros ($1.35 billion) of debt with a maturity of at least five years, according to a person with knowledge of the offering, who asked not to be identified because they weren’t authorized to speak publicly. The yield on Sberbank’s October 2022 dollar bond rose 35 basis points by the close in Moscow to 6.29 percent, the highest in a month, amid continued fighting in eastern Ukraine. That pared the drop to 110 basis points since April 28 as peace talks triggered a rally.
The renewed turmoil is leaving investors divided on the timing of Sberbank’s sale. A Ukrainian military plane was shot down by pro-Russian separatists near Luhansk on June 14, killing 49 people and sparking an attack on the Russian embassy in Kiev. On June 5, U.S. President Barack Obama gave Russia two weeks to stop supporting the insurgency or face further sanctions.
“I’m not sure this is the best time for Sberbank to go to the market,” Olga Budovnits, a credit analyst at Union Bancaire Privee in Zurich, which manages $3.5 billion in emerging-market debt, said by phone June 13. “It seems like we have an uncertain situation again and that sentiment is going to sour. I would not be inclined to buy.”
Sberbank has selected banks to manage the sale and is monitoring the market, according to a second person with knowledge of the situation. Alexander Baziyan, a Sberbank spokesman in Moscow, declined to comment when contacted by phone on June 13. OAO Lukoil, Russia’s second-biggest oil producer, said today it delayed a plan to sell $1.5 billion of Eurobonds.
The yield on the Moscow-based lender’s bond tumbled to a three-month low of 5.78 percent on June 9. Today’s increase pushed it 34 basis points above the 5.95 percent rate on bonds of Turkiye Is Bankasi AS, Turkey’s largest lender by assets. Both lenders are ranked BBB- at Fitch Ratings, the lowest investment-grade category.
The offering may be helped by the “hunt for yield” among investors following the European Central Bank’s interest-rate cuts this month, amid a decline in debt sales from Russian companies this year, said Lutz Roehmeyer, who helps manage $1.1 billion of emerging-market assets at Landesbank Berlin Investment GmbH.
“The situation in Ukraine is far from great but if it doesn’t deteriorate further, demand should be there,” he said by phone from Berlin yesterday. “Investors are more greedy than risk-averse at the moment.”
Russian companies have cut bond issuance by 76 percent to $11.2 billion this year, compared with the same period in 2013, according to data compiled by Bloomberg. Polish corporate sales have increased to $3.1 billion from $650 million in the same period of 2013, the data show.
Corporate borrowers in Russia were frozen out of international debt markets after Putin’s incursion into Crimea in March. While recent attempts by Russia and Ukraine to implement a peace plan enticed OAO Alfa Bank, Russia’s biggest privately owned lender, back to the market this month, the recent escalation may halt further issuance, according to Union Bancaire’s Budovnits. Alfa sold 350 million euros of three-year debt on June 5 through its holding company ABH Financial Ltd.
The downing of the plane came after the U.S. State Department said Russia sent heavy weapons, including old-model tanks and rocket launchers, to the rebels, who say they are fighting a war against fascism and to join Russia.
Ukraine also said today Russia cut natural gas supplies after demanding payments be made in advance, the first time shipments have been affected in this year’s crisis in relations between the two countries.
“It seems like all the good news has disappeared,” said Budovnits. “The gas talks with Ukraine are going nowhere and none of the counterparts want to compromise.”