Russian companies are poised to end an issuance drought that pushed rouble bonds to the lowest level since 2009 last month on bets the currency can’t fall any further.
The world’s largest nickel miner and Russia’s biggest retailer are among five borrowers preparing to sell 36.5bn roubles ($480mn) of bonds in February, matching the entire amount raised in January, according to data compiled by Bloomberg. The rouble’s descent to its weakest ever on January 21 sapped appetite for bonds in the currency.
Bond sales are on pace for a comeback as banks awash with roubles revive underwriting and a recovery in crude helps put a floor under the rouble, said Eduard Jabarov, director of debt capital markets at Sberbank CIB in Moscow.
“There’s plenty of demand for corporate risk and liquidity in the system,” Igor Kozak, the head of fixed-income asset management at TKB Investment Partners in St Petersburg, said by e-mail on Wednesday.
Crude rose 1.4% to $34.99 per barrel in London, extending a gain in February to 2.5% as the commodity recovers from a 12-year low of $27.88 on January 20, defying the most pessimistic forecasts for $20 which has boosted demand for ruble bonds in a debt-scarce market, Jabarov said. Russia’s currency traded at 75.2390 in Moscow, up 14% from its historical low of 85.999 on January 21.
Appetite so far has been sustained by banks seeking shorter-dated debt maturing in less than five years, but pension funds will soon enter the market to snap up longer-term bonds, Jabarov said. Non-state pension funds should receive as much as 140bn roubles from state development bank Vnesheconombank, he said, funds which can be redeployed into bond investments.
“Issuers may opt to sell debt with durations of about seven to ten years, which will interest the pension funds,” said Sberbank’s Jabarov, who led the third-most active underwriting team in Russia in 2015, with a 9.6% market share, according to Bloomberg data.
Jabarov acknowledges that new-issue spreads could be forced 50 to 60 basis points higher versus yields of about 11% charged to top-tier issuers at the end of last year to compensate for ruble volatility and cheaper oil.
Prospective issuers would be better off waiting until the Bank of Russia resumes its easing cycle, said Ivan Guminov, the chief money manager at Ronin Trust in Moscow. “It’s expensive to sell ruble bonds,” Guminov said on Thursday by e-mail. “The key rate could come down since inflation is falling, so to sell bonds right now is an expensive luxury for companies.”
Even after resisting rate cuts since September, the Bank of Russia is seen reducing its benchmark by 200 basis points to 9% by the end of the year, according to the median forecast of economists surveyed by Bloomberg.
PJSC Magnit, Russia’s largest food retailer, on Wednesday announced plans to raise 10bn roubles from bonds that pay 11.2% to 11.4%. GMK Norilsk Nickel PJSC, which is due to redeem 35bn roubles at the end of this month, on Wednesday set a first coupon of 11.6% on 15bn roubles of 10-year bonds with a put option in five years.
Absolut Bank PJSC and a local unit of Societe Generale are also among issuers planning deals.