(Repeats Wednesday item)
* Russian firms frozen out of international syndicated loan
* Banks cowed by BNP Paribas sanctions fine
* Companies look at yuan bonds but market is small
* Flows of Russian wealth to Singapore rising
* Banks in Singapore are clamping down on who they let in
By Rachel Armstrong and Tessa Walsh
SINGAPORE/LONDON, July 30 Russian banks and
companies shut out of Western funding markets are unlikely to be
greeted with open arms and ready wallets in Asia, international
bankers and industry experts say.
New sanctions imposed by Washington and Europe over the
Ukraine crisis have prompted firms such as VTB - Russia's
second-largest bank by assets - and Gazprombank
to look east for new sources of funding.
Banks and investors in Asia, however, are reluctant to get
involved. This leaves the Russian central bank as the only
obvious alternative, apart from Chinese currency bonds where
borrowing costs are rising and the market is too small to plug
the gap left by Western capital markets.
The Islamic bond market is also problematic.
The European Union and United States announced the sweeping
sanctions against Russia on Tuesday, targeting its energy,
banking and defence sectors in the strongest international
action yet over Moscow's support for rebels in eastern Ukraine.
Wealthy Russians looking to park their money outside Europe
and the United States also face a cautious welcome in Singapore,
Asia's private banking hub, where wealth managers are
increasingly picky about whose cash they handle.
"A lot of Russian money wants to come to Singapore but a lot
of it is not clean, so banks have tightened up all their rules,"
said Satish Bakhda, chief operating officer for Singapore at
Rikvin, which helps people and businesses set up companies.
"A lot have tried to incorporate companies, but when they
open the bank account it becomes very difficult because the bank
wants them to be resident in Singapore or know where the source
of funds comes from - and that's where they get stuck."
On the corporate side, the possibility of blacklisted firms
raising loans in any currency from syndicates of banks is close
to zero, even in Asia, because lenders with U.S. branches and
subsidiaries will not want to upset Washington.
The United States is already lobbying Asian governments to
join the sanctions regime. Banks around the globe
have also been cowed by a $9 billion fine imposed by a New York
court on France's BNP Paribas for doing business in
Sudan, Iran and Cuba - countries which are also subject to U.S.
Lenders are now taking a uniform stand, regardless of their
base, on Russia. "Right now, all banks are acting the same, no
group is any more or less cautious or sanctions-aware. It's all
too important - Asian banks are the same as European or U.S.
banks in this respect," said a London-based banker at an Asian
Even Russian firms that have not been sanctioned are
suffering as lenders reduce their exposure to the country.
Chinese banks might be willing to consider a syndicated loan to
such companies, bankers said, but only on a case-by-case basis.
Russian banks on the U.S. and EU blacklists do not have much
debt maturing this year and the central bank, which has
international reserves of $472.5 billion, has said it will
support any domestic bank hit by sanctions.
However, Russian banks and companies are looking at issuing
debt in the "dim sum" market from bonds denominated in yuan that
are sold outside China.
JSC Bank Rosinterbank, a small Russian bank, is looking at
issuing a 500 million dim sum bond and its executives have
already met investors in Singapore, Hong Kong and Macau.
ICDI, a corporate finance house which has been advising JSC
Bank Rosinterbank on the bond, said the bank expected good
demand despite the new sanctions because it is privately-owned.
"Rosinterbank deposit income grew three times after the
first wave of sanctions because clients choose private banks
instead of state-owned ones," said Elena Trofimova, CEO of ICDI.
Trofimova said investors from Hong Kong, Mainland China and
even London were interested in the deal and, after due
diligence, ready to take part. "They said that politics is
politics and business is business," she said.
But the fresh sanctions are spooking sentiment, making it
more expensive for Russian companies to access such funding.
Yields on Russian companies' outstanding yuan bonds jumped on
Wednesday with those on one Gazprombank issue soaring 100 basis
points since July 16, when it was hit with an earlier round of
Executives from Gazprombank were in Seoul last week to meet
fixed income investors in a so-called non-deal roadshow.
The dim sum market is also too small to replace Russians'
external financing needs. The entire market is worth around $110
billion, less than half of what Russian companies have borrowed
in euro- and dollar bond markets in the past decade.
The Islamic bond market, around the same size as the dim sum
market, is in theory an alternative option for Russian banks and
companies but in practice its use would be limited.
Around two thirds of the Islamic bond market comes from
ringgit deals out of Malaysia, a country that could be reluctant
to do business with Russian firms.
The latest round of sanctions was prompted by Western
suspicions that the pro-Moscow rebels shot down a Malaysian
airliner over eastern Ukraine with a Russian-supplied missile.
Moscow denied responsibility, blaming the Ukrainian military for
the disaster in which 298 people died earlier this month.
The remaining third of the Islamic bond market is in
A NEUTRAL LINE
EU and U.S. sanctions on individuals have been restricted to
a narrow group linked to President Vladimir Putin.
Notwithstanding the difficulties in opening accounts in
Singapore, private bankers there say that inflows from wealthy
Russians are up this year, attracted by the island's political
stability, low taxes and its tendency to keep its head down when
international conflict flares.
"Singapore treads a neutral line," said Sean Coughlan,
managing director of wealth planner Asiaciti Trust Singapore.
"That's attractive to clients who come from that part of the
world (Russia) - what they don't want is to park their assets in
a jurisdiction where tomorrow they find all their assets are
confiscated or frozen, or they can't get access to them."
There is no official data pointing to a rise in flows from
Russia but the latest available central bank figures show a 17
percent increase in assets under management from Europe in 2013.
Cyprus, the former destination of choice for Russian cash,
imposed capital controls and losses on large depositors last
year to save itself from bankruptcy.
Russians wishing to move their cash to Singapore have to go
to great lengths to prove that they are tax compliant.
Singapore, anxious to avoid U.S. tax inquiries that have hit
other financial hubs such as Switzerland, has brought in tougher
rules around vetting new clients.
Bankers in Singapore say Russians looking for a new Cyprus
have come to the wrong place.
"It takes around one to two months to open an account for a
client from say Russia, especially if they're using a
complicated structure," said the head of the Eastern Europe team
at a private bank in Europe. "By comparison for a client from a
developed country opening a straightforward individual account
it takes around one to two weeks."
(Additional reporting by Joshua Franklin and Katharina Bart in
Zurich, Joyce Lee in Seoul and Megan Davies in Moscow, Writing
by Carmel Crimmins; editing by David Stamp)