VTB, the sole lead manager on the deal, said the book for the note was $7bn, according to two investors. That is a nice number. The cash raised will be useful in filling budget holes, limiting the need to draw down reserve funds to cover the 4%-5% of GDP budget deficit.
But for the Russian government this was not just about the cash, it was about wanting to be seen to still be attractive to Western investors, and some even said it was about the undermining of sanctions (though the bond's use of proceeds says otherwise; it explicitly rules out 'violating US/EU sanctions').
Since the RFP for the deal was released early this year, the offering has been hit by one setback after another, none of which help to portray Russia as a sought-after sovereign borrower.
First, there was the matter of the banks arranging the deal.
Russia sent the RFP to over 20 banks, but after governments in the US and Europe asked their banks not to pitch for the deal, Russian state-owned bank VTB Capital has ended up as sole lead arranger.
Second, there is the issue of settlement — two days after pricing it was still unclear whether the bonds would be Euroclearable or held via Russia’s own National Securities Depository (NSD). The issuer is also acting as the paying agent.
Third, there is the very public embarrassment of several big London and US funds having been prohibited from participating in the note by their own compliance teams or because of the confusion over Euroclearability.
Those funds say the chunky book is likely to be largely locally driven. No doubt international investors want to buy it, but whether they can or not is a different discussion.
It also seems increasingly unlikely that the issue will join the major indices. Barclays, for example, confirmed on Tuesday that it would not be included in its indices.
With the sovereign having not issued since 2013, investors say they are itching to get their hands on fresh Russian paper, especially paper offering around a 50bp-75bp pick-up over the curve.
And several are saying they expect a big rally in the bonds after settlement as overseas investors start to buy — it’s just complicated and reputationally unpalatable to be seen to be buying it in the primary market.
The Russia sovereign bond placement will lock down a big chunk of cash and may well eventually attract international investment. That is not to be sniffed at.
But it has not been the advertisement for Russian risk, or the demonstration of smooth wrinkle-free market access that the country was hoping for.