* Russian bank plans further Asian currency diversification
* CFO considering additional Tier 2 sales
* Euro issues unfavourable due to swap rates
By Sudip Roy
LONDON, Jan 23 (IFR) - Russia's VTB Bank will reduce
issuance in the US dollar bond market this year and diversify
its investor base with more Asian currency issues instead, the
bank's chief financial officer told IFR.
In 2012, the bank issued USD5.75bn in the dollar market
through senior and subordinated bonds - the lion's share of its
total issuance of about USD7bn.
The state-owned lender, rated Baa1/BBB/BBB, has USD2.5bn of
dollar-denominated debt coming due this year, which it will
refinance through one or two transactions. But any additional
dollar deals will be opportunistic and will depend on being able
to reprice the bank's curve.
"This year we will be less active in vanilla issuances," CFO
Herbert Moos said in an interview with IFR.
"Our refinancing profile is USD2.5bn, which we will
definitely do and is a relatively manageable amount. Any extra
will be opportunistic, but we will seek to price well inside our
Instead, said Moos, "we want to push the envelope by
continuing to diversify our investor base and issue at or within
our dollar levels - therefore not pay concessions."
That diversification will mostly come through Asian markets.
Last week, for example, the bank tapped its 4.50% October 2015
renminbi bond for a further Rmb1bn (USD160.7m) to take the
note's outstanding size to Rmb2bn. At an issue yield of 3.802%,
the deal came 15bp through the bank's dollar curve.
Other Asian currencies VTB will target include renminbi
again, Australian dollars (in which it priced a USD500m,
five-year bond in December), Singapore dollars and Hong Kong
dollars. VTB is also considering other new markets.
"We are focusing on Asia a lot," said Moos. "The new market
realities mean that the incremental growth of investment capital
is coming from Asia."
The strategy is to grow its presence in these markets
gradually, with each new issuance extending the bank's tenor or
deal size and improving its cost of funding.
Moos pointed to the bank's transactions in the Singapore
dollar market, where its first deal in 2010 was a S$400m
two-year bond at 4.2%, followed the next year by a S$300m
three-year bond at 3.4%. In 2012, VTB returned with a S$400m
three-year note at 4.0% that refinanced the 2010 bond.
"Our target is to reach a USD1bn debt stock target in
Singapore dollars. At the moment we are at roughly half that
amount," Moos said, adding that the target was not necessarily
set for 2013.
"In each market, if we can develop our capacity to a
similar size, our debt profile will change away from the
mainstream markets," he said.
"Those markets are still important, but we want to create
enough alternatives so that we can control our issuance and
tighten our cost of funding."
One of the incongruities of VTB's debt profile is that, in
the dollar market, its bonds trade at a premium to fellow
state-owned lender Sberbank.
"If you look at the overall economics of both banks, they
are absolutely indistinguishable," Moos said.
"We have the same ratings, the same liquidity facilities
from the central bank, state support - in fact, at 75%, ours is
even greater. So from a credit quality perspective there is no
But while they borrow at similar levels in the domestic
market, VTB has to pay more in the dollar market, mostly because
of its larger funding programme over the past decade, and its
acquisition of Bank of Moscow in 2011, as VTB tries to catch up
its bigger rival in terms of total assets.
"Ten years ago we had 10% of Sberbank's assets, now we are
at two-thirds," Moos said. "So we've had a tremendous amount of
growth in our asset base. That has needed to be funded in size
and led us to pay up."
Now, though, the bank is changing its approach to funding.
"We will see a convergence of spreads with Sberbank,
although it won't happen tomorrow," Moos said. "But that's why
In addition, the bank expects corporate and retail deposits
to fund about 30% of its balance sheet, in line with Sberbank.
"We don't have any funding pressures as we have a lot of options
- central bank facilities, increasing corporate and retail
deposits, as well as the international markets," said Moos.
One currency that VTB is unlikely to issue in anytime soon,
though, is the euro.
"It's not a question of investor interest or the market, but
the swap. On a post-swap basis it's hard to justify euros.
Having said that, there are tentative signs that the European
crisis is being resolved, and if that continues then dollar/euro
swap rates will continue to converge. At some point it will make
sense to issue."
VTB will also consider a Tier 2 bond. Last year, it was the
biggest Russian issuer in the bank capital market. It became the
first Russian borrower to execute a Tier 1 instrument through a
USD2.25bn perpetual non-call 10.5 years note (including tap). In
addition, it sold a USD1.5bn 10-year Lower Tier 2 bond.
Moos said further Tier 1 issuance was not likely because the
bank was close to the regulatory limit of 15% of its overall
capital base. But he said the bank would consider a Tier 2 bond
as it seeks to boost its capital adequacy on the back of
expected high net income for 2012, which would be comparable in
size to the profits for the prior year, when VTB earned about
Moos said he was delighted with the perpetual transaction.
"The original deal was about price discovery, as no Russian bank
had issued a Tier 1 note before. Then with the tap we saw demand
well exceed the first transaction. We were very happy with the