Russian bond market finds pulse as Alfa-Bank mulls new deal
(IFR) - The Russian bond market could see further debt issuance this year despite the restrictions of US and EU sanctions after Alfa-Bank said it was considering issuing a subordinated dollar bond by the end of October.
The private lender which, according to two sources, has mandated Bank of America Merrill Lynch, Goldman Sachs and JP Morgan to arrange the deal, is hoping to carry out its plans after successful meetings with investors last month.
"We completed a US non-deal roadshow and an Asian one in the middle of July with positive investor feedback from both," Alfa-Bank treasurer Mike Lawrence told IFR. "We mentioned our intention to tap the market in September/October if market conditions permit. Our view has not changed and we will see what the market is like at that time."
No Russian bank or corporate has sold a new bond in the international markets since mid-tier private lender Promsvyazbank (PSB) issued a small US$300m 2021 Tier 2 note on July 15.
Russian bond volumes have plunged in 2014 compared to last year. Russian issuers have printed bonds totaling US$6.97bn so far this year, down from US$48.75bn for all of 2013, according to Thomson Reuters data.
While no deals would be expected now as financial markets wind down for the summer break, last week's further tightening of sanctions by the US and EU against a number of Russian companies has led some bankers and analysts to fear that the primary market for Russian issuers will be shut for the remainder of the year.
On Friday, ratings agency Fitch said that while the new US and European sanctions would not materially impair Russian banks' credit profiles, it expected that capital markets would remain closed to Russian entities in 2014-2015.
But while Lawrence's comments show that some potential issuers have not ruled out the possibility of a new debt sale this year, bankers urge caution.
"They're doing the right thing by making sure they've got options," said a syndicate banker. "But [at this stage] I don't think it means anything for the market."
One of the challenges facing any potential Russian borrower is the pricing of a new bond, given how spreads and yields have widened on outstanding debt.
Alfa-Bank's US$750m 7.50% 2019 Tier 2 bond has dropped to a 96 cash price to yield 8.47% and a Z-spread of 668bp from 97.30 where it had been quoted last Thursday, according to Tradeweb.
Any new debt from a Russian issuer will need to include a premium to take into account the political standoff with Ukraine.
If a deal emerges, it will not be the first time that Alfa-Bank has revived the Russian bond market.
In June, the bank's holding company ABH Financial printed a €350m three-year senior bond deal led by Alfa-Bank, Commerzbank and UBS.
That transaction was the first trade to emerge after a three-month impasse because of the Ukraine crisis and the first issue by a Russian-domiciled firm since Russian Railways' €500m nine-year bond that priced in February.
Alfa-Bank's deal was quickly followed by separate €1bn five-year bonds by Sberbank and Gazprombank, and then the dollar bond by PSB before the subsequent sanctions, which in particular hit the state-owned banks, closed the market again.
(Reporting By Michael Turner; editing by Sudip Roy and Helene Durand)