International banks are so far resisting the urge to make cuts to their Russian operations despite the worsening crisis in Ukraine and a sharp fall in the flow of Russian bonds, leading bankers have told Emerging Markets.
Although there has been a substantial change in where the bulk of CEEMEA bond business is coming from, some are even hopeful that the market could see a return of deals from the country by the end of the year.
“It’s only been two months and Russia is a big business for all banks that are strong in EM so it’s not going to be something that we backtrack on a knee-jerk response,” said one DCM official in London. “If there is a sudden reversal of tone, issuance prospects for the Russians could get a lot better and it could be possible that we see some paper in the second half of this year.”
The flow of Russian bonds has been dismal this year at just a sixth of last year’s volumes. The very shape of the CEEMEA bond market is being redrawn as investors begin to rotate out of Russia and concentrate on other areas such as the Middle East and Africa.
The DCM official added that league table positions were unlikely to change as a result of the Russia crisis — the banks that were big in Russian bond business tended to be the ones that are big in CEEMEA more broadly.
He said there was no one house that is particularly exposed to the country. Deutsche Bank, Citi and JP Morgan, which finished 2013 in the three top positions in the CEEMEA league table, all have broader EM franchises in addition to their Russian focus. Citi and JP Morgan are still at the top of the CEEMEA league tables for 2014.
It is only the Russian banks that were prominent in the international capital markets last year — Sberbank and VTB Capital — that could stand to fall in position.
“The Russian banks were still very focused on Russian bond business,” said the DCM official. “But though they were making moves to branch out further into the CEE and the Middle East they didn’t have much of a foothold outside of the CIS so there’s not much market share available to try to claim.”
Last year Russian bonds accounted for around 28% of all CEEMEA issuance, according to Dealogic. So far in 2014 Russian bond issuance has plummeted to $4.8bn from the $29.76bn printed in the same period last year.
And while overall CEEMEA volumes have also suffered — the total volume of CEEMEA bonds placed year to date are $53.9bn versus last year’s $91.0bn and non-Russian CEEMEA issuance has fallen from $71.2bn last year to $49.1bn this year — bankers said that volumes outside of Russia are beginning to pick up.
“There was a total CEEMEA market shutdown when the Crimea crisis started in March,” said one emerging markets syndicate banker in London. “In the last few weeks though, we’ve seen decent supply from the Middle East and from Africa which we expect to continue.”
“Recent primary dealflow is evidence of the ongoing strong interest in EM,” said Stefan Weiler, head of CEEMEA DCM at JP Morgan in London. “Oversubscription levels are historically high, new issue premia low or even negative and price compressions during execution are often significant.”