Sanctions No Downer for BlackRock as Russia Plans EurobondBy
Some investors avoided 2016’s debt sale over U.S. warnings
Amer Bisat sees ‘fixed-income friendly environment’ in Russia
Some of the world’s biggest asset managers watched Russia’s return to Eurobond markets from the sidelines last year after U.S. officials warned the deal could violate international sanctions.
As the Finance Ministry prepares a fresh offering, BlackRock Inc.’s Amer Bisat says he’s ready to buy.
“Russia stands out as fair-valued, maybe even slightly cheap,” said Bisat, a New York-based developing-markets money manager who helped advise on Russia’s transition to a free market as an economist with the International Monetary Fund after the collapse of the Soviet Union in 1991. “The risk that you’re taking in Russia is lower than in many other emerging-market countries."
Bisat’s Strategic Global Bond Fund has a neutral position in Russia’s Eurobonds, but is interested in buying “if there’s a cheapening or a new issue,” he said. The fund beat more than 70 percent of peers with returns of 3.3 percent this year, data compiled by Bloomberg show. Bisat declined to comment on whether his fund participated in last year’s sale.
Investors got cold feet on Russia’s 2016 sale after U.S. officials warned the offering could be used to fund state companies that are blocked from western financial markets. Russia went ahead with the sale in May using a single state bank as organizer, but the notes weren’t immediately accepted by Euroclear Bank SA, the world’s biggest clearing house.
With no signs the penalties will be lifted soon under U.S. President Donald Trump’s administration, Russia is pushing on with its preparations and has started selecting the deal’s organizers. The Finance Ministry’s debt chief, Konstantin Vyshkovsky, said on April 7 a placement may come in the first half of 2017 and he doesn’t expect Euroclear to delay direct clearing of the bond.
Russia’s budget stipulates a $7 billion external borrowing plan this year, of which $4 billion may be issued to swap old Eurobonds for new ones. The nation’s May 2026 bonds have climbed this year amid a global hunt for higher returns in emerging markets, driving the yield down more than 40 basis points. The debt rose for a second day on Monday, lowering the yield by three basis points to 4 percent as of 6:59 p.m. in Moscow.
While Russia’s current-account surplus and nearly $400 billion of foreign reserves cement the appeal of a Eurobond sale, ruble-denominated debt may offer better value as the central bank pushes ahead with rate reductions, Bisat said. He has a long position in the so-called OFZ bonds, which have handed investors the third-best returns in emerging markets this year.
The Bank of Russia signaled further easing as inflation nears its target rate after surprising economists in April with a deeper-than-expected cut.
“Their inflation-fighting credentials have improved, the economy is weak so they have space to cut interest rates and stimulate growth,” Bisat said. “That’s a very fixed-income friendly environment for us."