For Hopeful Ruble Bond Underwriters, Things Can Only Get Better

  • Sberbank sees business picking up after worst start since '09
  • Norilsk and Magnit among companies filling up deal pipeline

Russian companies are poised to end an issuance drought that pushed ruble bonds to the lowest level since 2009 last month on bets the currency can’t fall any further.

The world’s largest nickel miner and Russia’s biggest retailer are among five borrowers preparing to sell 36.5 billion rubles ($480 million) of bonds in February, matching the entire amount raised in January, according to data compiled by Bloomberg. The ruble’s descent to its weakest ever on Jan. 21 sapped appetite for bonds in the currency.

Bond sales are on pace for a comeback as banks awash with rubles revive underwriting and a recovery in crude helps put a floor under the ruble, said Eduard Jabarov, director of debt capital markets at Sberbank CIB in Moscow.

“There’s plenty of demand for corporate risk and liquidity in the system,” Igor Kozak, the head of fixed-income asset management at TKB Investment Partners in St. Petersburg, said by e-mail Wednesday.

Crude rose 1.4 percent to $34.99 per barrel at 10:19 a.m. in London, extending a gain in February to 2.5 percent as the commodity recovers from a 12-year low of $27.88 on Jan. 20, defying the most pessimistic forecasts for $20 which has boosted demand for ruble bonds in a debt-scarce market, Jabarov said. Russia’s currency traded at 75.2390 by 3:01 p.m. in Moscow, up 14 percent from its historical low of 85.999 on Jan. 21.

Pension Payout

Appetite so far has been sustained by banks seeking shorter-dated debt maturing in less than five years, but pension funds will soon enter the market to snap up longer-term bonds, Jabarov said. Non-state pension funds should receive as much as 140 billion rubles from state development bank Vnesheconombank, he said, funds which can be redeployed into bond investments.

“Issuers may opt to sell debt with durations of about seven to ten years, which will interest the pension funds,” said Sberbank’s Jabarov, who led the third-most active underwriting team in Russia in 2015, with a 9.6 percent market share, according to Bloomberg data.

Jabarov acknowledges that new-issue spreads could be forced 50 to 60 basis points higher versus yields of about 11 percent charged to top-tier issuers at the end of last year to compensate for ruble volatility and cheaper oil.

Prospective issuers would be better off waiting until the Bank of Russia resumes its easing cycle, said Ivan Guminov, the chief money manager at Ronin Trust in Moscow.

“It’s expensive to sell ruble bonds,” Guminov said Wednesday by e-mail. “The key rate could come down since inflation is falling, so to sell bonds right now is an expensive luxury for companies."

Even after resisting rate cuts since September, the Bank of Russia is seen reducing its benchmark by 200 basis points to 9 percent by the end of the year, according to the median forecast of economists surveyed by Bloomberg.

PJSC Magnit, Russia’s largest food retailer, Wednesday announced plans to raise 10 billion rubles from bonds that pay 11.2 percent to 11.4 percent. GMK Norilsk Nickel PJSC, which is due to redeem 35 billion rubles at the end of this month, on Wednesday set a first coupon of 11.6 percent on 15 billion rubles of 10-year bonds with a put option in five years. Absolut Bank PJSC and a local unit of Societe Generale SA are also among issuers planning deals.

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