Russian Firms Are Making a Comeback……Of Course They Work With the West

Posted: November 14, 2014 in Econ 101, Free Trade, Sanctions on Russia Meaningless

SOURCE: http://blogs.wsj.com/moneybeat/2014/11/13/russias-alfa-bank-braves-the-bond-market/

Russia’s Alfa Bank Braves the Bond Market

Alfa Bank is exempt from sanctions but is still paying a chunky yield.

Bloomberg News

Locked out of global debt markets since the summer, Russian firms are making a comeback.

The latest deal: Alfa Bank, which Thursday raised $250 million from selling junior bonds to global investors for 10-years at a chunky yield of 9.5%.

One reason for that high yield: junior bonds are riskier than other types of debt as they are first to take a hit after shares if a borrower goes bust.

But borrowing costs have shot up more generally in Russia because of concerns over Western sanctions and the ongoing violence in eastern Ukraine. Russian firms’ dollar bonds, on average, are yielding about 1.7 percentage points more than they did at the start of the year, according to a Markit index.

“This bond is offering attractive returns versus sanctioned  Russian banks as well as Alfa Bank’s previous bonds,” said Yannick Naud, a portfolio manager at Sturgeon Capital, who bought some of the bonds.

Alfa Bank is exempt from sanctions.

Last week, state-backed gas producer Gazprom, which is exempt from restrictions on raising money in the U.S. and Europe, raised $700 million from a one-year bond at a hefty price tag of 4.45%, well above the 2.5% yield on its outstanding bonds due in June next year.

Sanctions mean some Russian firms and banks are barred from issuing bonds in the U.S. or Europe, but even those borrowers that are exempt, such as Gazprom and Alfa Bank, have until now been frozen out as investors scale back exposure to Russian debt. That’s put a brake on new bond issuance. Russian banks and companies have raised just shy of $10 billion from global debt sales this year, about a quarter of what was issued over the same period in 2013, Dealogic data show.

So which other firms fit the bill for a similar strike on the bond markets?

Based on debt-maturity data from Bank of America Merrill Lynch, the short-list of Russian firms that aren’t restricted from raising funds and that could potentially issue bonds to repay debt owed this year include Alrosa for $500 million, Evraz $1 billion, Lukoil $1.1 billion.

Even so, geo-political tensions could still scupper any bond selling plans.

“Developments in eastern Ukraine will remain the principal determinant of any market sentiment and issuance environment,” said Simon Quijano-Evans, an emerging market analyst at Commerzbank.

The latest brace of deals suggest, however, that there is appetite out there–if the price is right.

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