Promsvyazbank should indeed spur others to follow, but it will need success in various factors, some of which are beyond its control.
Gazprom got its bond away last week, but for many in the market the $700m RegS/144a one year deal paid well over the odds (by some estimates, a 130bp new issue premium) and came with “the wrong tenor” – i.e. one that makes comparison difficult.
The timing of the deal was also bad, with the rouble plumbing new lows last week against the dollar.
Moreover, Gazprom does not work as an example to others. It stands too far apart in its stature from most other Russian borrowers and has great access to funding by other means. This combination of factors rendered the bond, in some people’s eyes, somewhat unnecessary.
But Promsvyazbank has every right to think that its deal can be different. Certainly who takes part and what price the bank pays will be essential ingredients in demonstrating success, but loans bankers are hopeful on both counts.
This will be a genuinely new money deal rather than an extension of existing debt. And while the banks involved are yet to be finalised, they are looking to be relationship lenders. As such, the price Promsvyazbank pays should not be excessive – there will be no opportunism to capitalise on circumstance here, say bankers, merely a fair reflection of risk.
The tenor of the deal will, like Gazprom, be one year. But that is far more common in the loan market and is the same as the $300m equivalent loan the bank agreed last year. At an expected $200m, the new deal looks decently sized and meaningful to the borrower, rather than symbolic.
The fact that the deal looks like a fair approximation of Promsvyazbank's pre-sanctions borrowing says much more for business as usual than Gazprom’s bond.
Most importantly, the deal is necessary. No one can tell what will happen with the Russia / Ukraine crisis, let alone whether western sanctions will be repealed and Russian lending one day re-opened.
But there are other borrowers already waiting on Promsvyazbank’s cue. Otkritie Financial Corp Bank (formerly Nomos Bank) and Acron would be encouraged to follow suit if this goes through.
And the Russian loan market definitely needs to end the year on a high after the dour run it has had in 2014. At this stage it is not looking for anything special – just a perfectly ordinary deal.
Promsvyazbank can be the year’s big win, not by standing apart but by being a reminder of normality.