Desperate to tap fresh funding sources in the face of mounting Western sanctions, Russia’s leading corporates are heading east, hoping to be welcomed with open arms by Asian bond investors. They may be out of luck.
Moscow-based energy giant Gazprom is mapping out an imminent Asian roadshow. Other flagship Russian firms are also mulling the opportunity to tap regional Asian financial institutions for financing, including diamond miner Alrosa and Sberbank, the country’s biggest lender, which met with investors in Singapore and Hong Kong this week. Others are venturing into India, Indonesia, and Malaysia, in the hope of triggering enough interest among local investors. A chunky bond sale in an emerging Asian market would be a minor coup for the Russian government.
Corporate Russia’s logic is impeccable. The country’s leading companies need money, but they may struggle to tap up European or US investors at a time when their masters in the Kremlin are busy causing havoc in eastern Ukraine. Sanctions, at first toothless, are slowly starting to bite: on Friday, US president Barack Obama, following a meeting at the White House with German chancellor Angela Merkel, posited the rollout of specific industry-targeted sanctions.
Many firms across the Russian Federation are thus weighing their options. Many like the look of Asia’s deep, liquid, yield-hungry pools of capital. “The region is awash with liquidity, and there’s huge demand for assets of all sizes,” notes one Hong Kong-based debt capital markets (DCM) banker.
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Yet many doubt how much appetite there is out there for debt issued by large-but-plodding state-backed Russian firms with little in the way of Asian credentials.
A few Russian firms have tapped local debt markets before, including Gazprom, which has a $1.25bn bond maturing on July 31. But many, Asian bankers say, will struggle to meet their funding needs in a market that remains baffled by Russia’s investment message. “You may well see some Russian names issuing debt in the months ahead,” said the Hong Kong debt banker, who has worked on both of Gazprombank’s dim sum bonds, the latest tranche of which, a Rmb1bn ($160m) print, was issued in January. “But many will struggle to convince investors. There aren’t that many Russian issuers out there, and we always struggle to decide how to sell their story, and how to gauge demand.”
Others believe that Russia’s own pivot toward Asia will be both short lived and painful, with corporates used to printing $1bn worth of notes with ease in New York or London struggling to issue a third of that, whether in Singaporean or Hong Kong dollars, or Chinese renminbi. Russia’s ill-judged Crimean land grab, and its attempts to undermine eastern Ukraine, have also poisoned its credit ratings. Standard & Poor’s downgraded the sovereign’s rating to a notch above junk bond status April 25, due in part to the country’s woeful economic outlook. Three days later, S&P trimmed the ratings of Gazprom and fellow energy giant Rosneft to BBB-, the lowest investment grade category.
“Asian investors aren’t blind — they can see what’s happening,” said a prominent Singapore-based DCM banker.