Ukraine Again Shuts Down Corporate Bond Revival: Russia Credit

Prospects for a revival in Russian corporate bond sales are dimming again as stepped-up sanctions by the U.S. and questions over the downing of a Malaysian airliner curbed interest in the nation’s debt.

“The door is shut again,” Michael Ganske, head of emerging markets at Rogge Global Partners Plc in London, where he helps manage $8 billion in developing-nation bonds and currencies, said by e-mail July 18. “It’s hard to imagine that international investors would be open to new issuance from Russian entities.”

While Russian companies including OAO Sberbank and Alfa Bank seized on a lull in tension with Ukraine to issue euro-denominated debt last month, fresh U.S. sanctions last week and the downing of a Malaysian Air jet over eastern Ukraine on July 17 threaten to drive away investors. Corporate foreign-currency bond sales have tumbled 67 percent this year to the lowest level since 2009.

Russian government dollar bonds due March 2030 dropped the most since April last week, sending the yield 37 basis points higher. That compares with a five basis-point drop in the week for similar maturity Brazil securities.

“It would be very difficult to issue Eurobonds at the moment, in any currency, for all issues,” Ronald Schneider, who helps manage about 800 million euros ($1.08 billion) at Raiffeisen Kapitalanlage GmbH in Vienna, said by e-mail July 18.

Worst Performers

Russia’s dollar-denominated corporate bonds are the worst performers among emerging markets this month, handing investors a loss of 1.5 percent, even after paring declines on July 18. The Bloomberg USD Emerging Market Corporate Bond Index average for developing nations was little changed in the period.

Ukraine tensions eased in May and June after President Vladimir Putin said he would work with the winner of the country’s presidential vote and later asked lawmakers in Moscow to rescind authorization they gave him March 1 to use force in Russia’s ex-Soviet neighbor.

As investor appetite for Russian debt picked up, Sberbank and Alfa issued euro bonds. VTB Group, Russia’s second-biggest lender, sold a 350 million Swiss-franc ($389 million) bond due October 2024 this month. The yield on the securities surged 53 basis points last week.

Options Narrow

Bonds, stocks and the ruble tumbled on July 17 after the U.S. blocked OAO Rosneft, OAO Novatek, OAO Gazprombank and Vnesheconombank from accessing U.S. equity or debt markets for new financing with maturities longer than 90 days. The ruble sank the most versus the dollar since 2011 before paring its weekly drop to 2.7 percent on July 18.

The currency was little changed versus the dollar at 35.1450 as of 5:11 p.m. in Moscow. The cost of insuring against losses on Russian sovereign debt rose to the highest since May.

With funding options narrowing, Russian companies may try to attract cash from emerging markets China and Brazil, Ogeday Topcular, who oversees $300 million of assets at RAM Capital SA in Geneva, said by e-mail July 18.

Russian lender OAO Promsvyazbank sold $300 million of seven-year securities on July 15, the day before the sanctions were announced. The placement was the first dollar sale by a Russian company since April. On July 18, Novosibirsk region postponed indefinitely a 7 billion ruble ($177 million) bond sale due to unstable market conditions, according to the sale organizers.

Whether Promsvyazbank could have succeeded in selling its dollar bonds the day after the sanctions is a “big question,” Artyom Konstandyan, chief executive officer of the bank, said at a conference in St. Petersburg on July 17.

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