Russia gears up for new era for rouble bonds

The rouble domestic bond market has been eyed by international investors over the last decade with a mixture of curiosity, eagerness and fear. Investors like the super-high yields on offer and the variety of credits, but are apprehensive about the rule of law in Russia and the documentation provided in such deals. Some are also concerned about the volatility of the Russian rouble, which is closely linked to the price of oil. Most of all though, investors have been held back by its inaccessibility.

  • 28 Sep 2012
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Until the beginning of this year, all OFZ trading was only allowed through Micex, the local exchange, stunting market growth because of the difficulties in opening local brokerage accounts.

But change is afoot. Russian authorities started allowing over the counter trading for the first time at the start of this year. And Euroclear and Clearstream are expected to start accepting domestic bonds before the end of 2012.

EuroWeek’s Russian rouble bond market roundtable was held on September 24 in Moscow. It brought together arrangers and issuers of rouble domestic bonds to discuss how the market operates, how it is likely to grow and how it may change in the coming few years.

Participants were:

Boris Ginzburg, head of fixed income, managing director, Uralsib Capital

Pavel Isaev, head of fixed income, managing director, Gazprombank

Vitaliy Konyushko, chief of emissionary centre, directorate of assets and liabilities management and funding, OTP Bank (Russia)

Alexandre Kozbenko, director, capital markets, Svyaznoy Bank

Ksenia Nefedova, head of debt finance and IR, structured and debt finance department, Vnesheconombank

Alexey Nikonov, treasury director, VimpelCom

Semen Odintsov, head of debt syndicate, Gazprombank

Marina Slutskaya, head of debt capital markets, corporate finance department, Gazprom Neft

Francesca Young, moderator, EuroWeek

Participant profiles


Uralsib is one of the largest arrangers of rouble bonds in the Russian domestic bond market. It specialises in helping mostly small to medium sized companies, but also some of the largest Russian corporations and municipal issuers, access the local fixed income market.

Uralsib is fifth on Dealogic’s league table of bookrunners of rouble domestic bonds. This year it has placed $1.2bn equivalent over 12 issues and has a 6.9% market share, according to Dealogic.


Gazprombank is one of the largest commercial and government-linked banks in Russia. It is one of the market leaders in arranging local bond issues for borrowers, but is also very active in Eurobonds, having sold international deals for Gazprom, Gazprom Neft and Gazprombank.

It is third on Dealogic’s league table of rouble domestic bonds, having placed 15 of those bonds so far this year amounting to $2.173bn equivalent. It holds a 12.4% market share in that area, according to Dealogic.
Gazprom Neft

JSC Gazprom Neft is a Baa3/BBB- rated oil company, majority owned (95%) by JSC Gazprom. The company’s main activities are exploration, development, production and sale of crude oil and gas, as well as oil refining and the marketing of petroleum products.

Gazprom Neft is present in both domestic and the international debt capital markets.

This year it has issued only once in the domestic market — a Rb10bn 10 year bond via VTB and Gazprombank. Last year the company sold two domestic deals.

From the beginning of this year the company has also focused on the international market, registering an MTN programme of $1bn at the start of August and selling its first Eurobond in September.
OTP Bank (Russia)

OTP Bank (Russia), 97% owned by Hungary’s OTP Group, focuses on retail products.

OTP Bank (Russia) sold its debut rouble domestic bond in 2011. It accessed the market three times last year, with bonds amounting to Rb15bn and has placed one more deal in that market this year, a Rb2.5bn 2014 note sold in March.

As of end-2011, the assets of OTP Bank (Russia) amounted to Rb116.9bn, equity was over Rb19.9bn and net profit was Rb60bn. As of the second quarter of this year, it was ranked the 35th largest bank in Russia by assets.
Svyaznoy Bank

The retail and consumer-lending focused bank recently closed its first rouble bond placement in August, a Rb2bn three year note via Uralsib. The note yielded 14.85% at pricing.

Svyaznoy Bank is growing fast — its assets increased from Rb13.2bn to Rb40.1bn in 2011. Its retail loan portfolio grew by 3,360.89%. As a result of that growth, Svyaznoy Bank shot up to 46th place among Russian retail banks in terms of assets as of January 1, 2012.


VimpelCom is one of the world’s largest integrated telecommunications services operators providing voice and data services through a range of traditional and broadband mobile and fixed line technologies.

Its Russian arm is a rouble revenue company and because of that it is trying to increase the proportion of roubles in its debt portfolio.

However, it needs to balance the need for the longer global maturities available in dollars with that need for rouble funding.

VimpelCom Russia is around half rouble-financed and half dollar-financed.

The company’s dollar financing is mostly in the form of Eurobonds with long maturities of up to 10 years. Its rouble financing takes the form of domestic bonds and bank loans, mostly from Sberbank.

The company is also considering a debut rouble Eurobond.

Vnesheconombank is a state corporation responsible for the development of the Russian economy, helping to diversify it, boost its competitiveness and encourage investment.

The development bank has three debt programmes available on the market — an EMTN programme, a Russian rouble programme and a dollar denominated domestic market bond programme. It is a regular issuer in all three markets.

It last tapped the rouble domestic market in February this year, according to Dealogic.

Euroweek: The rouble market has returned with a slightly higher cost to issuers than before the summer break. To what extent are borrowers willing to absorb those higher costs and what sort of signals are most important to you in terms of whether you will access the market at a certain pricing level?

Boris Ginzburg, Uralsib: August was a busy month for issuance but it has taken time for Russian domestic market issuers to accept the new levels of the market. The issuers which were quicker to respond were the issuers from the financial industry, specifically the banks, though those fall into two different categories. First, the consumer finance-focused banks. For them, the margins are very good and in their favour so they can absorb the increased yield on the liability side. So for them, the issue of cost is not yet extremely important. What’s more important to them is their ability to access the market in a timely fashion.

The second group of issuers which were quick to respond were the larger universal banks. They sensed that the market is going towards higher rates in general and they accepted that if they moved fast, they would be able to secure financing at lower yields. They expected that later, when the overall level of yields in the economy moves higher, they will be able to lend to their customers at advantageous rates.

The corporates and municipal issuers were a little slower to react. There were two factors in this. One was simply that it was vacation season in Russia and in Europe and the treasury directors and funding officials were a little slower to return to the market. The other reason is that there was still a strong hope that somehow — though nobody offered us an explanation of how — the central bank or the government would do something to lower the rates. There is still a very optimistic and paternalistic expectation in the economy that somebody can fix these problems for you.

Euroweek: But rates instead went the other way though — there was a 25bp rate rise across the board this month. What happened then?

Ginzburg, Uralsib: Well, as soon as the trend was established and it became clear that rates were actually not moving the way some issuers hoped, we noticed a substantial pick-up in interest in placing bonds in September from the corporate issuers. So there were two waves of response: first the quicker to react financials which are a little better at feeling the market, and then the corporate issuers which were a bit slower.

Semen Odintsov, Gazprombank: Boris is right that the response was very much dependent on the issuer sector. But I believe that difference to be more because of natural and timely need for funds. In the banking sector, financials will access the markets and take up liquidity in the market at almost any cost because their margins for on-lending can allow that. But the corporate issuers, for example in the oil and gas sector, often have a lot of free liquidity. They have cheap financing from other sources — revenues for example — so they use debt financing instruments such as Eurobonds or domestic rouble bonds only when it’s profitable for them.

At the moment all banks, commercial banks especially, are quite active on the market. There are three or four local issuers in the market at this very moment.

Euroweek: Marina, Gazprom Neft has also just placed a Eurobond, so clearly for you, accessing the rouble domestic market has nothing to do with an inability to be responsive. But does that Eurobond mean that you do not have to go to the rouble domestic market this coming quarter?

Marina Slutskaya, Gazprom Neft: From our side we are closely monitoring the situation on both the international and domestic markets and are trying to use the windows of opportunities in those markets.

This year we issued local bonds just once, in February. Taking into account that a large portion of our revenues is in dollars, we use cross-currency swaps which allow us to receive an attractive synthetic yield. Because of that we see very good opportunities on the rouble domestic market.

On August 2 we established the MTN programme, so we were very much focused on the international capital markets the following month and succeeded in going to it with the debut 10 year Eurobond placement you have mentioned. We printed a $1.5bn note with a 4.375% coupon at par. As a result, we are quite satisfied with the liquidity we have now.

This is the main reason why we haven’t approached the domestic market. But in the meantime our prospectus for local bonds ceased to be effective this year and we are planning to register a new one for next year to use this instrument together with other alternatives as a stand-by in case attractive issuing conditions appear in the market. We are certainly not prepared to borrow at any cost.

The reason for other Russian corporates and banks to hold on could be the expectation that the domestic market will become Euroclearable. Significant steps have already been made toward this. The discussions about creating the Central Securities Depositary started a long time ago and at the end of 2011 the respective federal law was signed. Now the market is waiting for the accreditation of the Russian CSD and believes it will happen by the end of the year. According to the press, the approximate timing is November.

Alexey Nikonov, VimpelCom: This year we placed Rb35bn of domestic bonds in March at 8.85%, which was a very successful placement and oversubscribed. Our approach is that, at any point in time, we need to have a registered prospectus for domestic rouble bonds. The prospectuses are valid for 12 months and once you have one in place you can go very quickly to the market and issue bonds.

This summer we registered a new domestic rouble bond prospectus for Rb50bn. With that prospectus in place, we are consistently looking at the market and are getting ready to react when the time is right. To be clear though — Rb50bn is not the size guidance for what we will raise, it is just the maximum amount we can do under this prospectus.

This year we see the domestic bond market as one of the primary sources of financing for us.

In terms of our liquidity position, we have an $800m Eurobond repayment due next April and we need to be ready in advance for that maturity. With such volatile markets, we definitely have to raise the financing for that in the fourth quarter of this year or the first quarter of next year at the latest. We’re trying to move that dollar funding into rouble funding. We are ready to go to the market when conditions become more favourable.

We’re consistently switching from dollars to roubles to better match our assets and liabilities. We usually wait until the natural repayment of the facilities and make the switch from dollars to roubles at that point rather than pre-paying.

Euroweek: With the banks already having accessed the market this quarter, is it likely that they will also continue to fund in the debt markets throughout the rest of this year?

Ksenia Nefedova, Vnesheconombank: It depends, again, on the way the market conditions are evolving. As well as the pricing dynamic of the moment, the other thing that we are seeing in that market is a certain amount of tenor contraction, which is not good for banks such as ours which are looking mostly for the purpose of project financing.

Alexandre Kozbenko, Svyaznoy Bank: We only recently did our first rouble domestic bond issue so it’s quite premature for us to go into the market again this year. However, we’ve got plans to come to the market next year and we need to prepare this year for that. So we will start the procedure of registration this year. The Russian market seemed to have two big windows of opportunity this year, in the spring and the autumn. We missed spring this year so we were only able to come to the market at the end of the summer. We want to be able to react quickly next year and probably print bonds a couple of times, depending on the market response.

Our first issue was met warmly, and next year we think the response will be even hotter!

Vitaliy Konyushko, OTP Bank (Russia): Last year we printed three issues of domestic bonds — one classic bond and two exchange bonds. This year, we took Rb6bn from the market in an exchange bond. We are now full of liquidity and are trying to increase our credit portfolio. After we’ve done that, at the end of the year we’ll think about our next bond. So when we next go to the market will depend on our clients.

Euroweek: The potential future Euroclearabilty of the domestic market is being eagerly watched and an inflow of foreign investors could bring down yields on your bonds and help you tap the markets at even tighter levels. To what extent are borrowers waiting for this legislation to be finalised? Does it affect your plans to issue bonds over the next few months?

Slutskaya, Gazprom Neft: The potential future Euroclearability of the market is definitely not the main reason for us to issue or not to issue local bonds. Yes, we expect that the market will be liberalised and we will have more opportunities to broaden our investor base issuing locally but we are mainly driven by the cost and maturity relationship at the time when funds are required.

We are focused on the extension of our debt maturity profile at a reasonable price and are looking for the long tenors that match our capex. It is now possible for us to borrow long term both domestically and abroad.

In 2011 the Ministry of Finance issued its first ever Eurorouble bond which had a seven year maturity. After that they succeeded in issuing a seven year OFZ bond, followed by 10 year OFZs and then 15 years, which is the longest maturity on the Russian market at the moment. That extension of the yield curve has allowed banks and corporates to be able to follow in issuing bonds with longer tenors.

Our company started issuing 10 year bonds in 2009. This year we issued a Rb10bn 10 year bond, yielding 8.25% at issuance.

Nikonov, VimpelCom: We are evaluating the possibility of going into the rouble denominated Eurobond market but that market is very volatile and so the timing has so far been an issue.

If we have a registered prospectus for domestic bonds then we can go to the market within 10 days. With the rouble Eurobond market, the process will take around two months from the day that we decide to go to the market until the day we close the deal. With the market being volatile it’s hard to plan two months in advance without missing some good opportunities.

It would be very positive for the market if domestic bonds become Euroclearable. This would widen the investor base.

Euroweek: If the rouble market becomes Euroclearable, what will be the differences between that market and the current international Eurorouble market?

Ginzburg, Uralsib: Before 2008, the normal mode of accessing the market was the following: issuers would come into the rouble market and then as a necessary next step, they would come into the Eurobond market because it was considered to be proper to be doing Eurobond deals. It was partly for reputation.

After 2008 and the big movements in foreign currency, most issuers realised that the Eurobond dollar market is only really suitable for companies that have the hard currency proceeds to be able to maintain those bonds and that the rest of the market should be issuing in roubles. But the rouble market is separate from the Eurobond market in the sense that the investors on the rouble domestic market are 90% domestic investors, if not more than that. Most of the foreign investors left the Russian market in the wake, or even before the crisis.

The big question for the regulators is how they can create an environment where Russian issuers do not have to go to the Eurobond market to issue rouble Eurobonds. At the moment, some issuers on the domestic market need the longer maturities that foreign investment can offer, but the domestic market cannot provide.

The difficulty is working out how to encourage foreign investors to use our domestic market and buy bonds issued under Russian law. If they succeed in bridging this, our market will benefit enormously from liquidity, from a diversification of the investor base and from extending maturity profiles.

However, if the regulators are not successful in this and these great expectations are not realised, the market will continue to be as divided as before. There are three very different segments of the market at the moment: dollar Eurobonds, rouble Eurobonds and the domestic market.

Odintsov, Gazprombank: And those segments sometimes act quite independently of each other. For example, there is a huge difference between financing via a rouble Eurobond and a rouble local bond issue. There is often a 150bp difference between them, which is huge, and isn’t normal.

Slutskaya, Gazprom Neft: It is an infrastructure and a legislation issue. Some foreign investors are now ready to accept the rouble currency risk, but at the same time the infrastructure needs to be developed to allow them to take that risk easily, which they are eager to do. I would say the Eurorouble market is considered as a kind of link between the domestic market and the international capital market because it helps to encourage international investors in taking rouble risk. For example, the share of Russian investors in the sovereign Eurorouble deal was less than 5% so it was clearly focused on international investors.

Since the beginning of 2012 there have been many successful local bond placements because of the rumours about the introduction of Euroclearability of the domestic market. Even the discussions initiated at the beginning of the year were enough to encourage the foreign investors to access the market via subsidiaries and other intermediaries, even though investing was not as straightforward as it should become in the future. The first steps in the direction of liberalising the market have definitely been done.

Euroweek: What are the potential pitfalls at this point or obstacles in the liberalisation of the market?

Ginzburg, Uralsib: Well, first the market needs liquidity. The market is now really focused on the need for liquidity and is willing to pay for it. Liquidity means that you have uniformity. So there is a need for a lot of investors to get involved. Unless you have this uniformity of the marketplace, it will continue to operate in different fragments without so much inter-linkage between them.

The second issue is that there is now a very serious effort from the Ministry of Finance to push this legislation forward because they will probably be the main beneficiary of it. As we move into more difficult economic times, the Ministry of Finance is not just issuing OFZs for the sake of issuing. They’ll be issuing them to finance the deficit.

They are pushing for it because they realise that there is at least a 150bp differential that can maybe be shrunk to 50, 40 or 20 basis points, whatever would be considered normal for the different legislation guiding the bonds.

But there are lobbying efforts from people who want this fragmentation to continue because fragmentation creates an opportunity to make money.

So for example, if you look at the way the market was operating before the 2008 crisis, the share of foreign investors in the Russian domestic market was quite high, up to as much as 40%-45%. But most of the issues that were bought by the foreigners were bought by investment banks, packaged into some deals and resold to the retail investors. But then the structure of the market was actually leading to fragmentation because most of these issues would then not be available for trading on the secondary market.
Unless the regulators succeed this time in pushing this legislation forward, there is enough opposition that efforts to liberalise the market will begin to wane and the next opportunity to try again will be a long way off.

Euroweek: If the market is liberalised, what is the expectation of foreign investor appetite? Are yields of the most highly rated and government-owned entities expected to come down the most?

Nefedova, Vnesheconombank: It could be. If we do see legislation, the influx of new investors and new money for the sovereign and quasi-sovereign issuers could bring down spreads between Eurorouble and rouble domestic issues from 150bp to around 40bp, realistically.

Kozbenko, Svyaznoy Bank: To bring some fresh blood here would be nice for all of us — at the moment it is a very closed community. We are not thinking of the need of foreign investors’ money yet, but it’s a question of time. We’ve grown rapidly, it’s just a question of time when we’ll grow enough and mature enough to be interesting to a wider investor base, European or worldwide.

Euroweek: The Russian domestic market was been somewhat protected throughout the crisis by the lack of foreign money in the system. Critics of the liberalisation of the market say that the increased liquidity of the bonds open the market up to more volatile swings in trading. Does this worry any of you?

Ginzburg, Uralsib: The volatility concern is often raised by the local exchanges or regulators, not the potential users of this new financial legislation. Most Russian corporations would find it beneficial that foreign investors will be allowed to buy Russian bonds easily. And they already have experience in issuing Eurobonds. They already know what volatility is and how to deal with it. It’s no longer the year 2000, it’s the year 2012. The market is mature enough to deal with it.

Euroweek: How will the new foreign investor base affect competition in terms of placing bonds? Will players such as Citi and Deutsche Bank become stronger on the domestic bond league tables because of it?

Odintsov, Gazprombank: There are only advantages to the higher liquidity — cheap financing and longer maturities. The domestic investor base wants to only buy five year maturities, seven at the most. Having an increase of foreign investors on the local market will provide a good reason for the government to develop their transparency and that of the market.

We see foreign investors accessing the market via local banks as well as internationals — there is no reason why issuers would need to turn to the international banks above the local players to sell their bonds.

In last week’s Eurorouble Gazprombank issue there were 150 accounts and around 65% were from Europe, Switzerland and the US and only around 20%-25% from Russia. But Gazprombank partly sold that deal itself.

Ginzburg, Uralsib: Looking at the example of Brazil gives us a good idea of what may happen here. Brazil did a similar opening-up of the local market many years ago. At first, maybe six or seven out of the top 10 banks placing bonds in the Brazilian market were subsidiaries of either American or European banks.

If you look at the league table now maybe one or two in the top 10 are still foreign. The rest are Brazilian banks so it’s not necessarily going to benefit the global banks operating in Russia in the long run. It should benefit the Russian banks.

On the issuer side, there are some borrowers that foreign investors will be much more suited to buy paper from — those with a long duration and low yield — basically, the issuers of the top Russian golden 20.

Going down the credit curve I’m not so sure that foreign investors will be playing the leading role. With those issuers, domestic investors will be far more important and foreign investors will likely take the lead from them.

Euroweek: Can you see perhaps more domestic investors being pushed further down the credit curve in order to pick up higher yields after yields in the top 20 have been driven down by the foreign inflows of money?

Ginzburg, Uralsib: Yes. But this is all hypothetical. Having lived for some time in Russia, I don’t see it happening so quickly and on the time schedule that it was originally discussed.

Euroweek: As part of the development of the domestic market and the increasing sophistication of it, can you see bond covenants being used more regularly, in the same way that they are in the international markets? From an issuer’s point of view, would it be acceptable or advantageous for you to see domestic bond documentation advance to include debt limits and covenants?

Slutskaya, Gazprom Neft:
We are not really eager to see it but would be ready to cope with such evolution if necessary armed with the extensive documentation experience we have in the international capital markets.

Ginzburg, Uralsib: So far, the investors on the domestic Russian market are 95% domestic investors and domestic investors don’t need it, period. If something goes wrong, you’re not expected to go to the courts and argue your rights there.

As a local investor, you try to invest in issuers that will not be defaulting in a post-2008 or post-2011 environment. There is more of a basic sense of investing in issuers that they feel confident will pay them back when the debt matures, and investors don’t feel that limiting a company’s ability to raise additional debt helps.

It’s a very realistic assessment of what they will and will not be able to do through the legal system.

Kozbenko, Svyaznoy Bank: The lack of heavy documentation has been an advantage of the Russian bond market for issuers. On the syndicated loan side, by comparison the documentation has always been more complicated, heavy and lengthy. The Russian bonds are quite easy and fast so that’s why, on top of what Boris said, I don’t think anybody — certainly from the issuer side — wants to make this process heavier by including covenants

Volume-wise, the Russian bond market, even now before the liberalisation of the market, is bigger than the syndicated loan market. The rouble bond market, especially for the not-so-big companies, at some points has been the only source of market funds because loan syndications were closed to them and Eurobonds, of course, were closed to them.

The Russian bond market has been the usual source of money for second and third-tier companies. It’s not just because they can pay such a high premium for the risk but also because the market operates on a standard set of documentation and a comparatively easy procedure. Investors don’t have a problem with that — I think Boris is absolutely right, nobody needs the covenants here.

Nefedova, Vnesheconombank: I believe that the lack of bond covenants is one of the factors that affects the premium paid in the domestic market versus the Eurorouble market. There is clearly a difference between the risks that foreign and international investors are willing to take. If the Russian domestic bond market becomes more standardised and wants to become more open to outside investment, it is perhaps the next step that we need to consider.

Euroweek: So should the domestic market become more liberalised, this is one of the reasons why there could still exist a spread between the domestic market and Eurorouble market?

Nefedova, Vnesheconombank: Yes. I can imagine there will be requests for bond covenants and other such legalities from the international investor community. And until the market is brought up to international standards, that spread will continue.

Nikonov, VimpelCom: With more international investors buying domestic bonds, they will have more power to insist on debt covenants being included in the bond documentation. For the issuers, this could be a disadvantage of them joining the market.

Having said that, this is not something we are concerned about because having been active in the Eurobond market for many years, we’ve developed standard Eurobond documentation covenants. The kind of covenants that would be put in would be acceptable for us and acceptable for investors, which do not limit our ability to develop and to work.

So I don’t see a big issue with it for issuers that are already used to accessing the international markets. Also, our outstanding Eurobonds have maturities that are much longer than the domestic rouble bonds that can be issued right now so we are already limited by those Eurobond covenants. Having the same or similar covenants in domestic bond documentation would not be a big problem for us.

Euroweek: Another feature of the domestic market, from both an investor and an issuer point of view, is the necessity of coping with the fluctuations of the rouble. It has been buoyed by the high oil price and global tensions this year, but some analysts remain very concerned about the potential drop in the currency that could come if eurozone problems escalate. Does this affect your funding plans over the next year and do you have any particular concerns with regards to the oil price and by extension the rouble?

Pavel Isaev, Gazprombank: Well, I’m generally concerned about the oil price, as are we all. Every issuer has different economics of the business they are doing. If the currency of the business is roubles then they should be funding in roubles without too much concern of how the currency will move — a little bit of appreciation or depreciation doesn’t matter.

If the intrinsic business is based on dollar revenues however, such as a mineral resources company, exporting a lot and trading a lot according to the world commodities prices, then when it comes to the rouble, they are playing with it a little bit, taking advantage of the positions of money market curves. They can extract synthetic dollar deals out of borrowing in roubles and making a swap transaction, effectively borrowing in dollars at the lower margins than should you do it directly on the bond market.

But when it comes to the overall dynamics of the currency, consider 10 years back. There was a really turbulent time for the Russian currency in 2008-2009. But I can’t see any other times that were really turbulent for the Russian currency. Looking forward, this is a pretty stable currency and there shouldn’t be too much concern about it.

Nobody knows for sure what is going to happen to the oil price, but what we do know is that the cost of developing new oil is pretty high. Whatever is talked about — technology, energy savings, all kinds of initiatives — I can hardly imagine it will go well below $80 a barrel because otherwise all new development of oilfields will stop at that point and the supply and demand story will balance the whole thing, keeping the oil price reasonably acceptable to all.

But the other question is what happens to the Russian federal budget if the oil price drops and how will that affect the overall economic conditions. My view is that our federal budget is much more flexible than many analysts and people who talk about it think and say. If we again look at history — when the oil price drops, growth in expenses in the federal budget are low and even decrease. The government manages that budget carefully.

Euroweek: But the breakeven oil price for Russia is on a historical basis very high.

Isaev, Gazprombank: Yes, that’s true. But there is a lot of discussion about what is the actual breakeven price of the Russian federal budget. Should people be willing to paint an accurate picture, to me it is clear that our federal budget is much more flexible than it is portrayed. It’s not in the interest of the budget recipients to say that they are flexible. Everybody says, ‘no, we’re not flexible with investors’ money’. Nobody says that, but it is true.

Slutskaya, Gazprom Neft: Talking about the oil price, our in-house assumption for the budget and borrowing programme planning purposes is $90 per barrel for Brent.

The currency forecast is not a big concern as we swap our rouble exposure into dollars and achieve a natural hedge for our business.

Euroweek: I understand the corporates being fully hedged but do the banks take a view on currency risk?

Kozbenko, Svyaznoy Bank: Well, we are very much a rouble-oriented bank and all our operations are in roubles. Activity-wise, we focus mostly on retail operations, so credit cards and personal loans. Our customers are Russian and so the lending is in Russian roubles. That is why we have no desire to borrow in any other currency but also explains why the currency risk is not at all a problem either. We are naturally hedged by borrowing in roubles and providing the financing to our customers in roubles.

Konyushko, OTP Bank (Russia): We are also a retail bank and we have operations not just in roubles. OTP Bank has operations in Swiss francs, US dollars and in euros for different purposes for our clients but all of the borrowings for these operations are hedged through swap deals. We do not keep an open position in any currency. The majority of our loan portfolio is dealt with in roubles so we are, on the borrowing side, trying to get only rouble financing. But if only hard currency financing is available, we will switch it to roubles via a swap.

Nefedova, Vnesheconombank: We have operations in roubles and dollars, but it’s the same thinking — we want to match our assets with our liabilities. So our favourite funding currency is roubles and our second favourite is dollars. But our house view is that we do not expect any near future turbulence or significant deviations in the rouble.

Ginzburg, Uralsib: In terms of the currency, our best protection is quite simple. It’s useless trying to predict where the currency will move to. The only way you can prepare is just to prepare your liabilities so that you limit exposure to the movements and not have too much debt.

In this way, Russia is in a quite reasonable condition compared to the other world markets. The only thing we haven’t tested yet is how easy it will be to refinance our borrowings if the rouble declines in value.

Theoretically, we have quite low borrowings, but we can go and increase them. Whether we can refinance is yet to be tested.

Euroweek: How is the market coping with having two banking giants, VTB and Sberbank, in the market? Are smaller banks with fixed income businesses finding it more difficult to compete for rouble bond mandates? And are smaller banks finding it difficult to compete in the wider market?

Konyushko, OTP Bank (Russia): The presence of Sberbank and VTB is being felt. We compete in three main fields, the point of sales loans, credit cards and cash loans and to a smaller degree, corporate loans. On the corporate side, we don’t try to compete with VTB or Sberbank for clients because just in terms of the pricing levels of loans we can offer, we cannot get comparable margins.

We expect that in the next one to three years competition is going to grow on the consumer lending business from Sberbank and VTB, but we are happy to compete in those markets. Credit cards is a huge and developing market so this could be one area in which we grow. But in that sector, besides Sberbank and VTB, all other players are all competing for that business. Many banks are trying to increase their portfolios in this segment. It is the same story with regards to cash loans. We see our business developing in these markets, though, and overall easier competition in these fields.

Kozbenko, Svyaznoy Bank: We’re not seeing the competition in the corporate sector because we’re purely retail banking and seeing as the penetration of credit cards in Russia is quite low, we’ve still got a lot of opportunity to grow without any pressure from anybody. We feel we have quite a unique product and there’s no real competition in this field — we have the second largest sales network after Sberbank. Competing with Sberbank and VTB is a concern for all banks operating in the Russian market, but we see them as operating in a different playing field entirely.

Odintsov, Gazprombank: Well, we are the third giant and our CIB business profile is similar. They are our main competitors in the corporate business and the bond placement market. We are trying to compete with them in terms of the quality of our services but we are essentially three links in one chain.

Isaev, Gazprombank: We don’t have huge plans to expand internationally the way Sberbank and VTB have. You have to rely on markets and the clients where you have expertise. We have expertise with Russian issuers and expertise with Russian investors. We do opportunistically take some steps in tapping other investor bases selectively, which are interested in learning about Russian credits. The logical next step for us is to consider taking steps into dealing with other kinds of issuers, such as from the CIS countries. But there is no sense in us trying to build expertise in, for example, mortgage bank financing somewhere in the United States. We can only lose on that.

Ginzburg, Uralsib: The Russian banking sector at the moment is like a jungle with two big predators. Yes, it is a little unnerving but it also makes you leaner and faster and more accurate in the things you do. That’s all. Sometimes competition with those two becomes very fierce, sometimes unnecessarily fierce. But that is typical in the investment banking world, it’s not dissimilar to other markets in the world.

In the most advanced markets there are still always some banks that are bigger and more powerful, but that doesn’t mean that the others cannot survive and grow. Within the German market, the US market or the UK market, there are at least a couple of banks that are more dominant. Yes, the dominance isn’t quite to the extent of VTB and Sberbank, but I think it is hoped that those two banks realise that they do not want to compete in certain areas.

Euroweek: Does the competition from those state owned banks in the bond market mean that fees for placing rouble bonds are being driven down?

Isaev, Gazprombank: For the buyer, it is always good if there is competition.

Ginzburg, Uralsib: As long that competition is subject to some rules, spoken and unspoken. Over the last couple of years it has become clear that most banks in the world are quite fragile. But the state owned banks have the advantage that whatever they do, they have an unlimited supply of equity to back them up. Not maybe unlimited the way we see it but you have much more leeway not to be as accurate and as precise in what you do and that does help them.

In Russia specifically, the other advantage that the state owned banks have and sometimes use is that in the post-2008 environment, the state was helping most of the Russian corporates. The agents of the distribution of this help were the state owned banks.

The state owned banks naturally and obviously used this to their own advantage and secured long term relationships with those issuers. In some cases they even put it in contractual terms that those issuers that were given help could only access the market for a number of years only through these agents.

At the moment, that is also shaping the competition in the corporate market. There are similar trends in the municipal market where the federal government is a big distributor of financial help to the regions. As it decides where the money will go to, it can also say how those regions then later choose banks for accessing the markets. So it’s not precisely perfect market competition. But Russia is still an emerging market. It’s not supposed to be perfect. And we are moving towards a more efficient market but we are only on the way now.

Isaev, Gazprombank: The concept of government owned banks is flawed though. In my mind, in Russia, there are no state owned banks as such. There are advanced investment banks. VTB and Sberbank are very advanced investment banks, but you find these very seldom in the Russian universe. If the number of other players are decreasing it is because you don’t get the same quality, same coverage, same service and everything else from anybody else. So let’s call them advanced investment banks, not state owned banks. It is the quality and the scale of what they are offering that is impressive, not their ownership.

Ginzburg, Uralsib: But who is paying for that?

Isaev, Gazprombank: The client is paying for that. There are clients sitting here at the table, paying a competitive price for a very good service. That is competition as in all other markets and all other worlds, state ownership or not. A good price for good service, that is the winner all the time.

Konyushko, OTP Bank (Russia): With regards to state owned banks, if you look at their credit ratings on a standalone basis and compare them to other banks, you will see something interesting. Some of these banks with big balance sheets and with high ratings overall sometimes have standalone ratings that are weaker than much smaller banks. The big difference for state-owned banks and some other banks is their main shareholder. The Russian Federation’s state ownership is why it’s very easy for the rating agencies to uplift the standalone credit ratings of these banks to investment grade and higher. And that’s why they themselves get from financial markets a lower yield and a wide investor base as well as support in all their business. The influence may not be directly from the government but they have links that influence their deals in an advantageous way.

Euroweek: From an issuer’s point of view, does state ownership matter when deciding on banks for a bond mandate?

Nikonov, VimpelCom: There are different markets and different areas of competition. If we are talking about retail banking then, yes, there is one dominant player, Sberbank, and then the other banks.

If we are talking about corporate lending then, again, yes, Sberbank can offer much lower interest rates compared to other banks. But if we are talking about the domestic bond markets, then I don’t see the dominance of these two banks in the market. Because when its comes to selecting a bank arranger of bonds then their having cheaper access to funds themselves does not help you because it is not those banks that are lending you money. They provide you a service, and that service depends on the quality of the team. We select the arrangers of our domestic bonds and the majority of all other services on a tender basis. So we take a list of the top 10 arrangers of domestic bonds and then invite them to the tender to compete for our business. It is very fair process.

  • 28 Sep 2012

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 317,793.98 1355 8.72%
2 Citi 301,114.13 1092 8.26%
3 Barclays 259,580.63 846 7.12%
4 Bank of America Merrill Lynch 258,842.43 934 7.10%
5 HSBC 224,273.23 905 6.15%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Oct 2016
1 JPMorgan 29,669.98 55 6.95%
2 UniCredit 28,692.62 136 6.73%
3 BNP Paribas 28,431.90 139 6.66%
4 HSBC 22,935.49 112 5.38%
5 ING 18,645.88 118 4.37%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Oct 2016
1 JPMorgan 14,593.71 79 10.38%
2 Goldman Sachs 11,713.19 63 8.33%
3 Morgan Stanley 9,435.23 48 6.71%
4 Bank of America Merrill Lynch 9,019.27 40 6.41%
5 UBS 8,763.73 42 6.23%