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Bank lenders should be pushing Russian issuers towards bonds

Banks have been fretting about Russian loans, both because it looks bad to lend to a country which has recently annexed part of another sovereign state, to widespread international condemnation, and because they don't want to be stuck with the risk if wider sanctions are imposed. They should band together to push Russian issuers towards their bond desks instead.

The bond market, while far from pleased with Russia at this point, is not closed to Russian issuers, say the bond bankers. Investors would insist on a decent price being paid, but bankers reckon there would be appetite at the right level.

The yields being asked by bond investors are high but not insanely so — Sibur, which is in the market with a loan, has $1bn 2018s trading at 6.8%, 200bp higher than at the end of February but only 30bp off where they were in June last year as investors fretted about rising rates. Issuers wouldn’t like it but they would be able to raise money at a workable level.  

Arranging a bond for a Russian issuer is a very different proposition to lending to one — both require co-operation with the issuer, but arranging a bond should not require a bank to take the risk itself. It is also much less of an endorsement of the country and its issuers.

Mainstream press publications have in the past been vocal about their dislike of banks arranging bonds for countries with recent dubious human rights records, even before sanctions are put in place.

Royal Bank of Scotland was given a kicking in August 2011 by UK broadsheet The Independent — with Sberbank, BNP Paribas and Deutsche Bank also getting dishonourable mentions —  after it helped arrange a bond for Belarus, despite there being no legal prohibition on doing business with the Belarusian state at that time.

But how much worse would the outcry have been if RBS (over 80% government owned lest we forget) had lent Belarus $1bn of its own money?

If banks start helping the Russian government raise money, they can expect some public opprobrium but they’re unlikely to be quite so vilified for helping the country’s banks and corporates raise cash, especially if they’re not state owned.

Bond bankers covering Russia have had a quiet time over the last few weeks. But if banks can push their clients out of the loan market that might be about to change. 

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