Russia Unleashing Frozen Pensions Clears Way for Corporate BondsKsenia Galouchko and Anna Andrianova
Russian companies locked out of international capital markets by sanctions and facing punitive borrowing costs at home are about to see conditions ease.
The government next month will hand back to private pension managers as much as 530 billion rubles ($10.4 billion) of employer contributions it kept in 2013. These institutions invest about 40 percent of their assets in corporate bonds, according to VTB Capital.
Russia initially diverted money from retirement funds to revamp the industry in 2013 and then continued seizing contributions to shore up the budget as Western sanctions over Ukraine and collapsing oil prices crippled the economy. The government is now moving part of the money back to boost domestic savings because this is the “only potential source” for a recovery in local bond markets, Deputy Finance Minister Alexey Moiseev told Bloomberg this week.
“With the inflow of pension money, we’ll see demand for new corporate issuance and supply will follow as companies have been accumulating debt-placement plans,” Evgeny Malykhin, the chief investment officer at Aton Asset Management in Moscow, said in an interview on April 20. “The yield spread of first-class corporate borrowers versus the sovereign could shrink.”
The country’s corporate bonds have returned 6.9 percent this year, less than the 14.3 percent on sovereign notes, Moscow Exchange data show. While the yield on ruble-denominated company bonds dropped to a 2015 low this week, according to a UralSib Capital index, it has almost doubled since Russia’s incursion into Crimea in March 2014, which led to the isolation of the country’s borrowers from international markets.
State-owned OAO Rosneft, OAO Sberbank and VTB Group can’t raise capital in the Western world because of sanctions. Plus, Sberbank and VTB have debt due this year.
Russia plans to give in May non-state retirement funds the diverted savings from 2013 and personal savings that people transferred from Vnesheconombank to private funds, Moiseev said.
“The savings component is a highly important element of economic policy, which, in fact, is at the moment the only potential source for a bond market recovery, and hence a recovery of long-term investment,” Moiseev said by e-mail on April 21 in response to questions from Bloomberg News.
The government won’t siphon off contributions from pensions funds starting from next year, Prime Minister Dmitry Medvedev said on April 23, reducing concern Russia may reimpose such measures as its budget deficit swells to a five-year high.
The expectation of the pension inflows has already added to the rally in Russian corporate debt, with the yield on the UralSib Capital index dropping 2.86 percentage points from Jan. 29 high to a 2015 low of 14.66 percent on April 23.
While bond sales by Russian companies in rubles have almost doubled to the equivalent of $9 billion so far in 2015, compared with the same period of 2014, they’re still at half the amount seen in the first four months of 2013.
Companies including OAO RusHydro are taking advantage of the newfound appetite for ruble debt. The world’s fourth-largest hydro-power producer is offering 10 billion rubles of 10-year bonds this week. RusHydro’s ruble-denominated Eurobonds due in October declined on Friday, increasing the yield five basis points to 15.78 percent.
“Pension money is a tasty morsel for bond issuers,” Konstantin Artemov, a money manager at Raiffeisen Capital in Moscow, said in e-mailed comments on April 22. “The market will get a really powerful boost even if not all of the money is invested in bonds.”