Analysts predicted low demand for the Russian Eurobonds due to Barclays


Barclays would not include the new Russian Eurobonds to their bond indices, reported Financial Times, citing a Bank statement. His decision Barclays explained that doubts, nasklko “acceptable” these bonds for investment.

“According to our information Barclays refused to include the new issue in your index because of problems with calculations — now there is a traditional market cleared through Euroclear and Clearstream,” says chief Executive officer of BCS Global Markets novel Suckers. The placement of these Eurobonds have passed via national settlement Depository (NSD), not Euroclear and Clearstream, he points out. “Such a settlement mechanism is applied for the first time and Barclays might want to see how such a billing system would work in practice,” he adds.

Barclays did not respond to a request .

In April Reuters reported that Euroclear and Clearstream refused to serve the new issue of Russian Eurobonds due to fears to violate the provisions of the US authorities and the EU. “Euroclear was provided unprecedented pressure,” said Wednesday, may 25, Finance Minister Anton Siluanov (quoted by Interfax), adding that Russia continues to negotiate with the clearing systems on the early settlement. The problem is that investors will not be able to make settlements via Euroclear and Clearstream, until they take the relevant decision, the Ministry of Finance warns in the prospectus.

Now none of the foreign dealers not quoted by the paper, said Suckers. This will significantly limit the liquidity of the secondary market and the demand of foreign investors who did not participate in the initial offering. “Until the opportunity of calculations on the securities in Euroclear and Clearstream, the majority of foreign investors will not be able to trade them”, — says the head of asset management fixed income, TKB BNP Paribas investment partners” Igor Kozak.

The Barclays decision is a negative factor for Russian Eurobonds, says the head of analytical Department of Sberbank CIB ” Alexander Kudrin in his review.

Many Western funds use a strategy of passive portfolio management, this means that they make investments, focusing on the index: investors buy securities in accordance with their shares in a particular index. If paper is not in the index, then it is no demand from these investors, says the Suckers. The issue liquidity will be low, if on paper there is no demand in the secondary market, he said. The advent of Eurobonds in the opposite index would force funds to buy them, says head of trade debt instruments “ATON” Konstantin Glazov.

For sovereign Eurobonds the most important indices JP Morgan Emerging Markets Bond Index, says Glazov. JPMorgan is considering the inclusion of new Eurobonds in the indexes, but so far the decision has not been made, said the press service of the Bank in response to a formal request . “Sovereign Eurobonds index Barclays EM Sovereign Index is also popular, it is often used funds that are traded electronically. For example, UBS offers investors electronically Fund sovereign Eurobonds UBS EM sovereign ETF,” says Glazov.

Experts interviewed believe that Barclays will change its decision, if the Russian government will be able to negotiate with the European clearing systems on the settlement. “We believe that this uncertainty will disappear in the coming days. If all goes well for the Ministry of Finance, its new Eurobonds will apply to Euroclear and Clearstream,” writes Kudrin from Sberbank CIB in their review. In this case, you can expect to reduce premiums on the new issue regarding the “old” 60 b.p. 5-15 b.p. “Moreover, in this case, we can expect that the Ministry of Finance this year will make another placement of Eurobonds, in order to use all the available limit,” he adds.

Kozak from “TKB BNP Paribas investment partners also believes that the inclusion in the Barclays indexes will help you earn today’s holders on the decline of profitability, which can amount to 50-70 b.p. “In the case of successful completion of all procedures necessary to start treatment and the possibility of settlements through Euroclear and Clearstream, the issue may become a new benchmark eurolanguage the Russian market,” adds Kozak.

If the events will develop in a negative way and paper will only refer to NSD, the premium will also be reduced, but less significantly (up to 20-30 b. p.) and the process will take a little more time, according to Kudrin.

On Tuesday, may 24, the Ministry of Finance completed the placement of ten-year Eurobonds. Issue volume totaled $1.75 billion at a yield of 4.75%. According to Siluanov, foreign investors bought Eurobonds worth $1.2 billion, the Russian private banks — $500 million