Foreign banks buy almost half of Russia’s latest Eurobond placement
Russia’s first international Eurobond action since November 2020 has brought the country $1,8 billion. Although American banks were forbidden to take part in such events last month, foreign investors still accounted for almost 50% of all orders.
Russia has raised $1,8 billion in its first international debt placement since the United States banned American banks from buying Russian government debt, reports The Moscow Times. On 20 May, the Russian Ministry of Finance sold two tranches of Eurobonds (government debt coupons denominated in euros), securing an effective borrowing rate of 2,65% per year on 15-year bonds and 1,37% on 6-year bonds. International investors accounted for some 47% of the purchases, with European banks making up a significant portion of the order book. Foreign banks preferred long-term bonds buying up 53% of those offered.
Meanwhile, US financial institutions were forbidden to buy Russian government debt, as President of the United States Joe Biden placed his first set of sanctions against Moscow last month. According to the measures, American banks cannot buy Russian state bonds directly but are still allowed to hold and trade them on the secondary market.
A slight premium of 0,3% on the bonds’ borrowing rates may be considered a fair value given conditions on global markets, believes Dmitry Dorofeev, a portfolio manager of Alfa Capital. Nonetheless, this is unlikely to disconcert the Ministry of Finance, which is keen to demonstrate that Russia can still count on a host of banks and investors willing to invest in the country’s debt both at home and abroad, he says.
Other analysts consider the impact of the latest sanctions more visible. Timothy Ash, an emerging market sovereign strategist at BlueBay Asset Management, said that Russia would have liked to have sold its full annual target of $3 billion in the bond auction to avoid a second issue later this year. “People are worried about being stuck with bonds if the US extends sanctions into secondary trading,” stated the strategist. He pointed out that other emerging market countries such as Saudi Arabia, Qatar and Abu Dhabi recently secured “much bigger deals […] and at a much higher coverage ratio — two to three-times typically.” Meanwhile, Russia received orders of around two billion euros giving a coverage ratio of just 1,3.
Coverage ratio refers to the volume of potential orders placed in a bond auction compared to the amount of bonds on sale, explains The Moscow Times. Investors place bids and indicate the desired rate of return. They can place speculative bids at much higher interest rates than they expect to be accepted, so auctions are almost always oversubscribed. The seller then selects offers he wants to accept. Thus, a higher coverage ratio indicates stronger demand and typically allows the seller to get better financing terms.