Sberbank Sells Eurobond in First Market Test Since Crimea

OAO Sberbank, Russia’s largest lender, sold 1 billion euros ($1.4 billion) of five-and-a-half year notes today, testing investor appetite for the first time since President Vladimir Putin’s annexation of Crimea.

The lender issued loan-participation notes due November 2019 at 260 basis points above midswaps, according to Nick Darrant, head of central and eastern Europe, Middle East and Africa syndicate at BNP Paribas SA in London. The book came in excess of 2 billion euros, he said by e-mail.

The sale comes after access for Russian companies to global debt markets was largely frozen for more than two months by Putin’s takeover of Ukraine’s Crimea peninsula in March. The U.S. and its allies say penalties affecting Russia’s access to financial markets, technology and military hardware may be imposed as early as this week if the country fails to take steps to reduce tension in east Ukraine.

“It’s a strong credit but it’s a Russian credit and with the eastern Ukraine situation smoldering, it’s a tough sell,” Michael Ganske, who helps manage $8 billion in currencies and bonds as the head of emerging markets at Rogge Global Partners Plc in London, said by e-mail. The deal may open the window for other Russian issuers “if things go in the right direction in Ukraine,” he said.

Cash Crunch

OAO Gazprombank is meeting investors this week in Europe for a benchmark sized euro-denominated debt sale, a person familiar with the deal said, asking not to be identified as information is private. The yield on Gazprombank’s 2018 euro notes fell less than one basis point to 3.71 percent in London, compared with a peak of 5.2 percent on April 28.

“Sberbank paid a negligible new issue premium by pricing almost flat to its own dollar funding curve,” BNP’s Darrant said. “The door is now wide open. There is an orderly queue of Russian issuers forming for execution before the August holidays.”

Russia’s lenders have become more reliant on the central bank for funding in part due to the closing of global debt markets. The Bank of Russia said last week it was adding 2 trillion rubles ($58.5 billion) to a program aimed at tackling a cash shortage among lenders.

“Sberbank’s dollar curve tightened during the marketing and bookbuild phase as the investor base perceived a strong reception of the new euro deal,” Anton Popov, Managing Director of Treasury at Sberbank in Moscow, said by e-mail.

‘Acute’ Shortage

Herman Gref, Sberbank’s chief executive officer, said on June 6 that steps were needed to address the “acute” shortage of long-term ruble funding, or risk forcing banks to raise interest rates to stem demand for credit.

Sberbank last sold euro-denominated debt on March 4 at 3.08 percent. The yield on those securities was 3.09 percent today.

The lender’s dollar-denominated debt maturing in October 2022 yielded 6.15 percent, compared with a peak of 7.43 percent on April 28. The average rate for emerging-market corporate dollar bonds dropped to 5.36 percent on June 20 from a 2014 peak of 5.96 percent on Jan. 31, JPMorgan Chase & Co. indexes show.

Barclays Plc, BNP Paribas SA, Deutsche Bank AG and Sberbank CIB managed today’s sale.

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