Large issuers borrow until the worst times

Russian borrowers have become more active in the Eurobond market. Following Rosselkhozbank, Sberbank and Gazprombank, VEB placed its securities worth $1 billion. Borrowers are taking advantage of a window in the debt market that opened after the Greek elections and could close at any time.

Yesterday morning, VEB closed the order book for the purchase of ten-year Eurobonds in the amount of $1 billion. The book was opened on Tuesday, VEB initially set the benchmark yield for the securities at 455 bps. p. to ten-year US government securities (UST). However, later the benchmark was lowered to 440-450 bp. p. to UST. American securities by that time were trading with a yield of 1.66% per annum. As a result of the placement, the spread to UST was 440 bps. p., and the yield on the securities is 6.025% per annum, two bankers close to the organizers of the placement told Kommersant. The issue was organized by JP Morgan, Deutsche Bank, HSBC and Calyon Credit Agricole.

VEB placed the securities at a slight premium to the market. “The results of the placement of VEB’s new paper correspond to a premium of 25 bp to the curve of the bank’s already circulating instruments,” notes Gazprombank analyst Yuri Tulinov. In addition, he points out, the yield on VEB Eurobonds implies a premium of 50 bp. p. to the issue of ten-year Eurobonds of Sberbank, “despite the fact that historically the instruments of these state banks of comparable maturity were traded extremely close to each other in terms of yield.” “Very attractive benchmarks for investors,” states BCS analyst Leonid Ignatiev. However, he adds that “probably, for the issuer itself, such placement conditions are also comfortable, since there was no reduction in the volume of issue.”

This year VEB is entering the Eurobond market for the second time. In February, he placed five-year securities for $750 million at a rate of 5.357% per annum. Thus, today there are five issues of VEB dollar Eurobonds in circulation with a total volume of $4.95 billion, one issue of Eurobonds for 500 million Swiss francs, as well as five issues of ruble bonds with a total volume of 70 billion rubles.

Over the past week and a half, VEB has become the fourth Russian issuer that managed to place Eurobonds. On June 18, Rosselkhozbank's securities were placed for $500 million with a circulation period of 5.5 years at a rate of 5.298% per annum. Following him, Sberbank entered the market by placing seven-year Eurobonds worth $1 billion at a rate of 5.18% per annum. In addition, Gazprombank placed one-year Eurocommercial paper (ECP) for $400 million at a rate of 3.75% per annum.

Following the Greek elections on June 17, a window for borrowing opened in the markets. “The election result prevented an apocalyptic scenario for the development of events in the eurozone, and investors began to expect new incentives,” says Mr. Ignatiev. Many issuers are trying to take advantage of the current situation. Thus, Russian Standard Bank expects to place Eurobonds at the end of June, and Gazprom has announced the same plans. At the same time, market participants agree that there is no confidence in the success of further placements. “The situation is very precarious; in a market as volatile as it is now, the window could close any day,” sums up Mr. Ignatiev.

Alexander Mazunin

Bonds flew out the window