Russia has placed Eurobonds for $1,75 bln

Russia has placed 10-year Eurobonds with a yield of 4.75% per annum. The Ministry of Finance has closed the bid book 24 may at 20:00 GMT, said a source in the investment company involved in the placement.

According to him, the Eurobonds were sold with premium in 75 b.p. to the market at the rate of 4.75% per annum. A source in the Bank said that by the end of the day the demand for the bonds amounted to $9 billion “Closing of the book was planned at 14:00, but because some investors have extended accommodation”, he said. The banker also said that he knew that among the investors who applied, there are foreign participants.

The Russian government has offered investors a 10-year Eurobonds with benchmark yield of 4.65 and 4.9%, implying a premium to the secondary market of about 50 b.p. The placement agent — VTB Capital”. A source in the investment company involved in the purchase of Eurobonds of the Finance Ministry, said that by Monday evening the volume of applications received from investors, was significantly above the planned volume of placement. “The oversubscription amounted to $5.5 billion, while the organizers wanted to place at least $1 billion,” — said one of interlocutors who knows about this from the organizer of placing. Managing a large investment Fund said that “VTB Capital” would like to attract investors from Asian countries, so the auction was extended until Tuesday, may 24.

On Tuesday, in the middle of the day, it became known that the demand for securities of the Ministry of Finance exceeded $6.3 billion

Despite the fact that U.S. sanctions and the EU do not apply to the Russian government borrowings, the terms of issue contain three specific provisions related to Western sanctions. First, the paper will serve the national settlement Depository (NSD) — domestic Central securities Depository, and not the European clearing systems Euroclear and Clearstream. Investors can’t hold securities through Euroclear and Clearstream, until they take the relevant decision, the Ministry of Finance warns in the prospectus. In April Reuters reported that Euroclear and Clearstream refused to serve these Eurobonds due to fears to violate the provisions of the US authorities and the EU regarding compliance with sanctions.

“The innovation is, apparently, necessary in order to circumvent the technical difficulties that arose after the regulators in the EU and the United States “recommended that” local banks not to participate in the offering. Apparently, with the same purpose, the borrower is explained in the prospectus that the proceeds from the offering will be used to cover the dollar costs, for example, for the payment of interest and principal on foreign debt,” writes in his review of Sberbank CIB analyst Alexander Kudrin. He also noted that the remaining resources will be sold to the Central Bank and will become part of its reserves. “Finally, the function of fiscal agent probably will also assume NSD”, — says the analyst.

In addition, the conditions of the securities provide for payments to investors not in dollars but in other currencies: pounds sterling, euros or Swiss francs. “The payments on the bonds may affect geopolitical events, and if the payment in dollars will become impossible, provides for payments in alternative currencies,” — said in the section “risk Factors”. Informed sources Reuters reported that Western banks involved in the project, advised the Finance Ministry not to nominate a paper in dollars, because any dollar payments pass through the US financial system and there is a risk of blocking such payments because of the sanctions. The organizers considered the variants with the placement of securities in Swiss francs, Chinese yuan or euros.

Issue of Eurobonds is likely to buy Russian banks and investment funds, said yesterday the Director for analysis of financial markets and macroeconomics UK “Alfa-Capital” Vladimir Bragin. “Most likely, the location of the active participation of Russian investors, the same banks who need somewhere to invest the foreign currency funds”, — said the head of trading “Aton” Yaroslav Podsevatkin. According to him, in favor of this version says that the transaction is carried out through the national settlement Depository. For foreigners purchase of Russian securities via NSD — more complicated technical process than the purchase of securities through Clearstream and Euroclear, said the trader. “Given the large volume of monetary liquidity accumulated by the banks, they will easily redeem this issue,” notes the analyst of Raiffeisenbank Denis Poryvai, noting that Americans and Europeans will not violate any informal limitations of their controllers for this release.

“The demand for the Eurobonds, apparently, created mainly local players, while foreign investors are not active in view of the earlier negative attitude of the US Treasury to the decision on the deployment of Russian debt”, — wrote in the morning review by the chief economist of Alfa Bank Natalia Orlova.

In Sberbank CIB predicted that with the uncertainty with the settlement mechanism, during the initial offering, the share of foreign participants is unlikely to exceed 10-15% of the total volume of applications. Thus, according to Alexander Kudrin, the presence of a “bridge” for transactions between NSD and Euroclear together with the above-mentioned innovations must ensure the smooth acquisition of these securities by foreign investors, at least on the secondary market. “We believe that sooner or later the paper will begin to contact Euroclear /Clearstream…In any case, the paper looks quite attractive to buy,” the analyst writes. Analysts IK “Veles the Capital” Ivan Manaenko and Arthur Nawrocki believe that because the paper of the Ministry of Finance are sold at a premium to the secondary market, the portion of the securities fall into the portfolios of foreign players. “On the other hand, there are negative aspects as foreign currency liquidity for purchases of Eurobonds absorbed from the banking system, which is not a favorable factor for the exchange rate of the ruble”, — experts conclude.