Sberbank followed fellow state-owned bank Vneshtorgbank (VTB) to market on Friday, selling what was only Russia's second subordinated issue ever at a spread of 11bp over Treasuries inside VTB's level of earlier that week.
Sberbank had the benefit of watching how the market received VTB's deal before going out with price guidance of its own, although it had to contend with what many saw as a larger-than-expected deal from VTB. VTB was originally looking to raise $300m-$500m but plumped for $750m after building a book of almost $1.2bn.
Sberbank's sole lead manager UBS went out with price guidance of 212.5bp over mid-swaps for the 10 non-call five year bond, finally pricing in line with this at 249bp over Treasuries.
Because the lead was keen to price the deal before the release of January's US payroll figures last Friday, it advised the borrower to opt for an $850m issue rather than the $1bn it was hoping for.
The tactic paid off when Sberbank was able to return for an extra $150m on Monday. “We sized the deal at $850m, taking into account the size of the final book and the desire from investors to see the deal perform after the spread widening of the VTB deal,” said Richard Luddington, head of EEMEA debt capital markets at UBS in London. “On Monday, we saw follow-through buying and reverse enquiry for an increase so were able to add a further $150m to achieve Sberbank's desired size of $1bn at a spread well inside VTB. The price has remained firmly above the issue price of par.”
Sberbank, which accounts for approximately 62% of retail deposits in Russia and almost 29% of Russia's overall banking assets, is the largest bank in central and eastern Europe by Tier 1 capital.
“This was only Sberbank's second international bond issue and investors appreciated the scarcity value and credit quality relative to VTB,” said Luddington. “We saw several large funds in the book that were buying a Russian bond for the first time ever, also encouraged by the Standard & Poor's rating upgrade on Monday.”
The original book of $1.3bn contained 123 accounts. By geographic breakdown it was distributed: UK 52%, Asia 14%, Switzerland 9%, Germany 7%, Austria 5%, France 3%, Greece 3%, Scandinavia 2% and the rest of Europe 5%. By investor type, funds took 66%, banks 22% and private banks 12%.
Standard & Poor's upgraded Russia to investment grade last Monday, which bankers said was another factor in Sberbank's favour. S&P's announcement came only hours before VTB's deal was launched, meaning that the launch process was already too advanced for the upgrade to be fully factored in. As a result of the upgrade, some high grade accounts will be able to open lines for Russia for the first time.
Vimpelcom, Russia's second largest mobile phone operator, brushed aside concerns over the $157m tax bill from the government in December, pricing a $300m five year issue on Tuesday morning with characteristic speed.
Lead managers JP Morgan and UBS were able to execute the deal within one day after building a book of $2bn containing 238 accounts.
Bankers close to the leads said that the company's renown as one of Russia's most frequent issuers, as well as its strategy of always using the 144A format, meant it had a wide enough investor base to be able to sell deals quickly.
Vimpelcom is using the issue to refinance a $250m bond maturing in April.
Shortly before the new deal was announced, Vimpelcom's 2009 bond was yielding 7.79% and its 2011s 8.17%, while the new issue was priced to yield 8%.
By investor type, funds took 78% and banks 22%. By geographic breakdown, accounts in the US took 40%, the UK 29%, Switzerland 6%, Germany 5%, Asia 4%, Scandinavia 4%, France 3% and the rest of Europe 9%.
Vimpelcom's tax demand has since been reduced to $17.6m after intervention by Norway's trade minister late last year. Norwegian telecoms company Telenor owns 29% of Vimpelcom.