Swiss Banks Rehabilitating Russia With Year’s Biggest Eurobond

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Chart: Russian Corporate Yields

A lender from Tatarstan is about to go where no other Russian bank has dared in six months: the Eurobond market.

Untouched by sanctions over Ukraine, OAO Ak Bars Bank is pitching to raise as much as $400 million in bonds maturing up to three years from now. It’s offering to pay no more than 8.5 percent in annual interest, compared with 6.8 percent on similarly rated notes from PAO Promsvyazbank due April 2017.

Success in the sale, led by Credit Suisse Group AG and UBS Group AG, may mark the revival of a market closed to all but the biggest Russian companies since the nation’s incursion into Crimea. Amid the dearth of issuance, Russian corporate bonds have rallied: six of the 10 best returns in the past month have come from Russian banks’ securities.

“Investors are a lot more comfortable with Russian credit risk compared to six months ago as the fundamental deterioration has not been as severe as originally feared,” Apostolos Bantis, a credit analyst at Commerzbank AG in Dubai, said by e-mail on Monday. “Although concerns about sanctions will continue to cloud sentiment, there is more conviction that the worst is over.”

After meeting investors in Hong Kong on Monday, Ak Bars continues in Singapore Tuesday and Zurich Wednesday, according to a person familiar with the deal, who asked not to be identified because the information is private.

Asian Investors

Ak Bars may receive strong demand from a “very specific target investor base” of Asians seeking higher yields and Swiss investors managing Russian private wealth, said Sergey Dergachev, a senior portfolio manager who helps oversee $13 billion of emerging-market debt at Union Investment Privatfonds GmbH in Frankfurt.

“Most likely, Ak Bars will be more a one-off issue,” Dergachev said by e-mail on Monday. “I don’t expect a wave of Russian new issuance in the second half of 2015.”

Ak Bars is seizing on a “favorable” moment in the market for its sale, the bank’s press service in Kazan, said by e-mail Monday. Yields on Russian companies’ foreign bonds have dropped to an average 7.1 percent from as high as 13.6 percent in December, when plunging oil prices and a rout in the ruble sent investors fleeing from the nation’s assets. The yield on Ak Bars’ $500 million of notes due in November was at 3.65 percent at 5:02 p.m. on Tuesday in Moscow. That compares with a rate of more than 17 percent in January.

Moody’s Investors Service rates Ak Bars with Promsvyazbank at B1, four steps short of investment grade and two below the Republic of Tatarstan.

Credit Quality

Its “credit quality is supported by the government of Tatarstan, one of the most financially sound Russian regions,” said Alexey Tretyakov, a money manager at Aricapital Asset Management in Moscow, who holds Ak Bars 2015 notes and is considering buying the new bonds.

Russian companies have reduced international bond sales to $214 million this year from $8.7 billion by this time in 2014 and $28.6 billion for the same period on 2013, according to data compiled by Bloomberg. OAO Gazprom, Russia’s biggest company, sold $700 million of one-year notes in November and Alfa Bank, the nation’s largest privately owned lender, issued $250 million. Bank UralSib raised $77 million in January. UBS helped arrange the sales for Alfa and UralSib.

Most issuers stayed out of the market as borrowing costs surged with the Bank of Russia hoisting benchmark borrowing rates by 650 basis points to 17 percent last year. It has since cut the rate to 11.5 percent.

“There’s definitely appetite for Russian corporate issuance,” Kathy Collins, a research analyst at Aberdeen Asset Management in London, said by e-mail on Monday. “Not all of the Russian corporates are sanctioned; there are still plenty of good-quality names.”

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