beyondbrics

Russian corporate borrowers are taking the Eurobond market by storm. Since the start of the month, Russian companies have raised close to $3.5bn on the international debt market, as bond holders look to Russia for higher yields and exposure to rising commodity prices.

Steel producer Evraz and Alfa Bank, Russia’s largest private lender, have raised a collective $1.85bn this week, bringing this month’s total to nearly $4.5bn. Moreover, Russian companies are now able to borrow for longer.

In its placement yesterday, for instance, Alfa raised $1bn in a 10-year Eurobond at 7.75 per cent, or the bottom of the 7.75-7.875 per cent guidance it gave earlier on Tuesday, Reuters reports.

This compares to a year ago, when a corporate issuer like Alfa would have been lucky to get an 8 per cent yield on a three-year Eurobond, says Dmitry Dudkin, a fixed income analyst at Uralsib.

Moreoever, this represents one of the first times since the crisis that a privately-owned Russian company has been able to even place a 10-year Eurobond, or debt with such  long maturity, Dudkin tells beyondbrics.

“The Eurobond market was almost completely shut down during the crisis. Now with Russia’s gross domestic product growth forecast at 4-5 per cent this year we’re likely to have substantially higher issuance both on the Eurobond market and on the domestic market,” (the latter of which saw the bulk of Russian borrowing last year) Dudkin says.

The increased demand for Russian Eurobonds is being driven by global yield rates which are close to an all-time-low, says Nikolai Podguzov, head of fixed income strategy at VTB Capital.

The Russian companies that have come to market so far this year are all second-tier issuers. Most of have been offering higher yields than Alfa and than Evraz, which priced its seven-year Eurobond with a yield of 6.75 per cent on Wednesday.

This compares to Renaissance Capital, which earlier this year settled with a yield of 11 per cent, for instance, and Tinkoff Credit Systems, a mid-sized Russian bank, which placed its Eurobond with an 11.5 per cent yield.

“Yields globally are close to their all-time lows…[Russian bonds] offer some of the highest yield in emerging markets,” Podguzov says.

This is good news for investors – but also for the Russian borrowers themselves. Thanks to the successful placement of its 10-year Eurobond, Alfa now has a yield curve for its debt with bonds maturing in 2015, 2017, and 2021.

Let the race to the Eurobond market begin.

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