ECB Lures Alfa Eurobond as EU Tiptoes on Ukraine: Russia Credit

The prospect of fresh euro-region monetary stimulus is prompting OAO Alfa Bank’s owner to sell Russia’s first Eurobond since President Vladimir Putin’s Crimea incursion in March.

ABH Financial Ltd., the holding company for Russia’s biggest private lender, is offering between 300 million and 350 million euros ($409 million and $477 million) of three-year notes with an expected yield of 5.5 percent, a person familiar with the matter said today, asking not to be identified because they’re not authorized to speak. Euro-denominated debt due March 2019 of OAO Sberbank, Russia’s largest lender, yielded 3.02 percent today, 1.38 percentage points less than its dollar bonds due the same year.

Russian borrowers, frozen out of international debt markets since the move into Crimea, may be tiptoeing back as European Central Bank President Mario Draghi prepares to unleash measures tomorrow to spur the economy and bolster inflation. Sentiment may also be improving as the European Union holds off on new sanctions over the Ukraine crisis even as the U.S. said Putin still faces the prospect of deeper penalties.

“The more expansive stance” of the ECB means more issuers prefer euros over dollars, Lutz Roehmeyer, who helps manage $1.1 billion of emerging-market assets at Landesbank Berlin Investment, said by e-mail yesterday. “U.S. investors are more wary of Russian politics and stricter on sanctions.”

Political Cost

Euro notes due 2016 of VTB Group, Russia’s second largest bank, are yielding 3.18 percent today, 88 basis points more than at the end of last year and down from as much as 5.30 percent in March. The rate on bank industry dollar bonds fell to a 12-month low of 4.49 percent on May 30, according to JPMorgan Chase & Co.’s Corporate EMBI Broad Diversified Financial Sector Blended Yield.

ABH Financial, which last sold 85 million Swiss franc ($95 million) of 2018 notes in November, is rated three steps below investment grade at Standard & Poor’s, while Russia and VTB are ranked BBB-, the lowest non-junk score.

“It looks attractive,” Sergey Dergachev, who helps oversee about $10 billion at Union Investment Privatfonds GmbH in Frankfurt, said by e-mail today adding he did not participate in the deal. “It will be illiquid and the deal structure is not that easy to understand.”

‘We Go’

Speculation the ECB will provide more stimulus pushed yields on euro-region sovereign debt to a record-low 1.43 percent on May 30, according to Bank of America Merrill Lynch’s Euro Government Bond Index. ECB policy makers will share their outlook on June 5, when they probably will lower the 18-nation currency bloc’s official rate toward zero and take the deposit rate negative for the first time, according to median estimates in a Bloomberg survey of 50 economists.

The yield on Russia’s euro-denominated Eurobonds due in September 2020 rose two basis points to 3.06 percent today, compared with this year’s peak of 3.89 percent in March 13 and 3.14 percent on Dec. 31.

“We have a long-term view on capital-markets funding and are not generally swayed from our bond timetable by external events, unless the reasons are very good,” Michael Lawrence, Head of Treasury at Alfa Bank, Moscow and Group Head of Treasury, ABH Holdings said by e-mail yesterday. “When we are ready and the market is ready, we go.”

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