Billionaire Chasing Vodka With Dim Sum Joins VTB: Russia CreditJason Corcoran and Marina Sysoyeva
The Russian bank owned by vodka billionaire Rustam Tariko is weighing the country’s first sale of yuan debt by a junk-rated lender as trade with China grows.
ZAO Russian Standard Bank will finish investor meetings in Asia today, according to a person with knowledge of the matter, who asked not to be identified as the information isn’t public. The yield discount of yuan bonds compared with ruble notes for three-year debt from state-run VTB Group has widened 24 basis points, or 0.24 percentage point, to 490 since Dec. 28.
Russian trade with China increased 11 percent last year to $80 billion, trailing only the European Union and countries in the former Soviet Union, according to Federal Customs Service data. Tariko joins VTB and OAO Russian Agricultural Bank selling yuan debt as rising investor appetite cuts the cost of borrowing in the Chinese currency.
“Trade between Russia and China is increasing at a serious pace,” Vladimir Evstifeev, an analyst with OAO Bank Zenit in Moscow, said by e-mail on Jan. 28. “The need to finance Russian companies in the Chinese currency is growing, creating a need for banks to find reliable financing sources in yuan.”
The average yield of Dim Sum bonds fell to a 15-month low of 3.47 percent on Jan. 25, the S&P/DB Orbit Index, which tracks bonds denominated in offshore renminbi shows. The gauge climbed four basis points yesterday to 3.5 percent.
The yuan bond sale allows Russian Standard to “diversify its investor base and attract funding to develop its business in favorable market conditions,” Artyom Lebedev, a Moscow-based spokesman, wrote in e-mailed comments today.
VTB’s three-year yuan debt sold in October yielded 3.83 percent today, 21 basis points off a record low reached Jan. 17. The yield on McDonald’s Corp. yuan bonds due September this year fell to a six-month low of 2.37 percent on Jan. 14 and rose two basis points to 2.56 percent yesterday.
VTB sold 1 billion yuan ($160 million) of notes due in 2015 at a yield of 3.8 percent, its third offering of yuan debt, according to a Jan. 18 filing. Russian Agricultural Bank, which like VTB and the Russian government has Fitch Ratings’ second-lowest investment-grade ranking, also sold 1 billion yuan of debt due in February 2016 last week.
Tariko’s Russian Standard Corp. includes the lender as well as the vodka producer with the same name. The company has a 40 percent market share of the premium vodka market in Russia and exports to more than 75 markets across Europe, the U.S. and Asia, according to its website. It sells its vodka through duty free outlets in China.
Russian Standard, which is rated B+ at Fitch, four steps below investment grade, participated in the world’s biggest ice festival in Harbin, northern China, with a bar sculpted from blocks of ice.
“We have plans for China,” Preston Mendenhall, a spokesman for Russian Standard Corp., said by phone today, without providing further details.
While the volume of Russian banks’ notes denominated in yuan is “miserly” at less than 1 percent of total bond sales, their share “will develop as trade grows,” Dmitry Dudkin, head of fixed-income research at UralSib Financial Corp. in Moscow, said on Jan. 28. “Banks are trying to take part in the market of the future.”
Selling debt in currencies other than those a lender focuses on is “opportunistic,” Ian McCall, who holds Russian Standard bonds and helps manage the equivalent of $107 million in emerging-market assets at Quesnell Capital SA in Geneva, said by e-mail yesterday.
“They can plummet in a bad market because the holders don’t understand the credit they are buying,” McCall said.
The ruble traded little changed at 30.0375 per dollar by 5:55 p.m. in Moscow. Ruble futures expiring in March showed the currency at 30.266 per dollar.
The yield on the country’s dollar bonds due in April 2020 jumped 17 basis points to 2.787 percent. The yield on domestically traded government ruble bonds due in June 2017 rose two basis points to 6.19 percent. The yield on Russia’s ruble Eurobond due in 2018 fell two basis points to 5.744 percent.
The extra yield investors demand to hold Russian debt rather than U.S. Treasuries rose six basis points to 165, according to JPMorgan EMBIG indexes. The difference compares with 151 for debt of similarly-rated Mexico and 141 for Brazil.
The cost of protecting Russian debt against non-payment for five years using credit-default swaps climbed one basis point to 139, according to data compiled by Bloomberg. The swaps cost 13 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.
VTB has also borrowed in Singapore dollars, Swiss francs and Australian dollars. Investors in Asia, including from Taiwan and Singapore, bought 85 percent of the lender’s yuan notes, VTB said in a Jan. 18 statement.
“It’s a logical way to diversify companies’ balance sheets” and “lower the cost of financing,” Tim McCarthy, who oversees more than $1 billion of assets in Russia and other emerging markets at Valartis Asset Management in Geneva, said by phone yesterday.