Russia pushes ahead with international bond

Russia has hired a bank to launch its first international bond since the conflict in Ukraine led to the country being placed under sanctions, according to the Financial Times.

The country last approached international markets in 2013, when it raised US$7bn. Russia subsequently had sanctions imposed on it by the US and European Union (EU) the following year as a result of its annexation of Crimea and its support of separatists in the eastern Ukraine conflict.

In February this year the FT reported that the Russian government had contacted 25 investment banks, as well as Russian lenders Sberbank, Gazprombank and VTB Capital, about a possible new bond offering. It added that the Kremlin was actively seeking additional sources of revenue as the Russian economy entered a second year of recession.

However, Russia’s attempt to find underwriters for the eurobond in February failed after interference from the US and EU led banks including Goldman Sachs and Deutsche Bank to drop out of the bidding process. The US government reportedly stated that participating in the sale would run counter to foreign policy, while the EU warned banks to be “mindful” of the indirect risks of violating the bloc’s sanctions imposed over Russia’s role in the Ukraine crisis.

The Finance Ministry has apparently used the intervening period to decide how to still go ahead with a new issue. According to the FT, the 10 year dollar-denominated bond could price to yield around 4.65-4.9% and state-run VTB is the sole book-runner on the deal. Yields on Russian bonds, which move inversely to prices, rose sharply in 2014 but have since fallen. A dollar-denominated bond maturing in 2023 now trades at a yield of 4%, having neared 8% in 2014.

The proceeds of the bond “will not be directed to any activity that would be prohibited for a US or EU person or entity under sanctions laws, directives or regulations applicable to them”, according to initial documentation.


Related reading