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Oil Greases Return for Junk Banks to Ruble Bonds: Russia Credit

Published: October 16, 2012 | 8:34 am
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OAO AK Bars (AKBR), a Russian bank rated four levels below investment grade, is selling ruble bonds for the first time in four years as lenders in the oil-rich Tatarstan region seek to lure investors chasing higher yields.
AK Bars plans to issue 5 billion rubles ($161 million) of three-year notes on Oct. 18, it said in an Oct. 11 filing. The yield on the lender’s 10-year dollar bonds sold in July sank nine basis points to 6.77 percent on Oct. 12, narrowing the premium investors demand to hold the debt over emerging-market peers to 214 basis points from an Oct. 1 record of 407 basis points, according to JPMorgan Chase & Co. indexes.
Russian companies are rushing to sell debt spurred by the country’s main export oil blend trading above $100 since July and U.S. and European bond-buying programs. OAO Tatfondbank (TATF), a Tatar bank that’s two levels below AK Bars at B3 by Moody’s Investors Service, finished taking bids for 2 billion rubles of bonds last week.
“The ruble market is experiencing a true awakening,” Maxim Korovin, a Moscow-based analyst at VTB Capital, said by phone on Oct. 11. “We’re seeing that many issuers with lower credit ratings are seizing their chance.”
AK Bars plans to use proceeds to develop loans to major corporate customers and attract new clients, Aidar Mukhametzyanov, director of investment business, said in an e- mailed response to questions yesterday. The bank is returning to ruble bonds because of the “good market situation,” he said.
Tatfondbank, which set the coupon at 13 percent on 2 billion rubles of three-year bonds, plans to direct funds toward its strategy up to 2013, particularly increasing lending to small and medium-sized business, the bank’s press service said in e-mailed comments.

Oil Price
Urals crude, Russia’s chief export earner, has averaged $110.76 a barrel this year compared with $109.47 last year, according to data compiled by Bloomberg. OAO Tatneft, the dominant oil company in the Tatar region of 3.79 million people, increased output 0.5 percent in August to 530,000 barrels a day, data from the Russian Energy Ministry’s CDU-TEK unit show.
The ruble rose 0.5 percent to 30.9485 per dollar by 11:12 a.m. in Moscow. Non-deliverable forwards, which provide a guide to expectations of currency movements, showed the ruble at 31.4150 per dollar in three months.

Bank Bonds
OAO Gazprombank (GZPR), Russia’s third-largest lender, started accepting bids for 10 billion rubles of bonds yesterday after selling 30 billion rubles of three-year notes last week. The local units of HSBC Holdings Plc (HSBA) and Societe Generale SA are also among lenders considering issuing in the Russian currency.
While Tatfondbank successfully closed the book on bids for its notes, the yield is the highest on record, according to data compiled by Bloomberg. Most demand is for higher-rated banks, according to Alexey Korolenko, who helps manage 108 billion rubles of assets including Tatfondbank bonds at Uralsib Financial Corp. in Moscow.
“We’re seeing a lot of ruble issuance,” he said by phone on Oct. 12. “In such a positive market, we’re more interested in higher-quality companies. Such high-yield issuances bring a high day-to-day return but the upside in price is barely visible.”
Russia is rated Baa1 by Moody’s, the third-lowest investment-grade ranking. Russia’s sovereign dollar bond due in April 2020 climbed, lowering the yield four basis points to 2.516 percent. The yield on domestically traded notes due in June 2017 fell four basis points to 7.11 percent. The yield on Russia’s international ruble bond due in March 2018 was little changed at 6.41 percent.

Cost Protection
The cost of protecting Russian debt against non-payment for five years using credit-default swaps rose one basis point to 141 basis points, according to data compiled by Bloomberg. The swaps cost 16 basis points less than contracts for Turkey, which is rated three levels lower at Ba1 by Moody’s. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
The extra yield investors demand to hold Russian debt rather than U.S. Treasuries slid one basis point to 183, according to JPMorgan EMBI Global indexes. The difference compares with 152 for debt of similarly-rated Mexico and 145 for Brazil, which is rated one step lower at Baa2 by Moody’s.
Banks will be the main buyers of the debt, according to Konstantin Artemov, who helps oversee about $180 million in Russian bonds at Raiffeisen Capital in Moscow. Issuers are taking the opportunity to sell while the window for ruble bond issuance is open, he said.
“The mood in the markets is very good right now, we’re seeing a boom in ruble issuance,” he said by phone on Oct. 12. “Right now is a great time to issue.”


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