Only four years ago, Russians were the biggest sellers of Singapore dollar bonds outside Asia. As of this week, they’ve all paid up and left town.
None of the country’s issuers remain in the market after Moscow-based lender VTB Bank JSC repaid a S$400 million ($292 million) note without replacing the debt on Monday. It’s the first time in five years a Russian issuer hasn’t had a Singapore dollar bond outstanding.
U.S. and European sanctions over the conflict in Ukraine have curbed funding routes for Russia’s largest borrowers, with capital markets in even neutral nations such as Singapore also steering clear. The island could do with the business, with local corporate bond sales running at less than half of 2012’s record S$27.6 billion high.
“The market is still apprehensive about doing business with Russian entities and banks,” said Jay Lee, a Hong Kong-based debt capital markets lawyer at Simmons & Simmons LLP. “This kind of sentiment may have affected these types of funding deals tried by Russian entities in the Asian funding market.”
While Singapore’s Ministry of Foreign Affairs said it seeks to maintain friendly relations with all countries, it referred to Minister of Foreign Affairs K. Shanmugam’s comments to parliament in March 2014 that the island objected to any unprovoked invasion of a sovereign country and opposed the annexation of Crimea into Russia.
“Russian troops should not be in Ukraine in breach of international law,” Shanmugam said at the time.
“VTB has a long and successful track record of local issuances in Singapore and strong rapport from the local institutional and private investor base,” the lender’s Moscow-based press office said in a July 16 e-mail. VTB hasn’t refinanced the 2015 notes because of unfavorable market conditions and its comfortable liquidity, it said.
Its Singapore exit is no anomaly. Russians didn’t issue any bonds in currencies other than rubles in the second quarter of this year. Since last September, they’ve sold only about a dozen U.S. dollar-denominated private placements and domestic notes.
That’s seen Russia’s total foreign currency debt issuance dive to $1.6 billion this year, from $11.6 billion in 2014 and $51 billion in 2013, data compiled by Bloomberg show.
While various issuers including Russia’s largest bank OAO Sberbank flagged plans to enter the Singapore market, only VTB and Bank of Moscow ever carried them out. Yet at their 2012 peak, there were S$1.25 billion of Russian issues outstanding, about 9.5 percent of all non-Asian debt in the market.
Singapore embraced the Russians when they first came. In 2010, VTB debuted in the island nation with a S$400 million deal, upped from a proposed S$150 million issue thanks to strong interest. It was the lender’s first Asian currency note and Russia’s second following a Japanese yen offering by Gazprom.
By 2011, Singapore was the biggest market for Russian bonds outside Europe, and U.S. dollar sales. While they’re getting a frostier reception now, it’s not for lack of trying.
“There has been a push for Russian entities to focus on the Asian funding market,” Simmons & Simmons’ Lee said. “There seems to have been increased collaboration efforts between Russian entities and the far east entities.”
Singapore hasn’t openly signed up to sanctions, according to Ted Hopf, a professor of international relations at the National University of Singapore. It hasn’t been completely neutral either, with the government’s stated opposition to actions in Crimea.
In the meantime, Russian borrowers are busy bolstering other Asian ties. VTB announced last week that it had gained access to China’s interbank market.
“Asia is now a natural option for Russian companies to raise funds, the sanctions have forced them to look east,” said Warut Promboon, chief rating officer at Dagong Global Credit Rating Co. in Hong Kong. Even so, “there are fears the sanctions could be expanded, so it’s understandable some investors could stay away.”