Russia’s first international Eurobond action since November 2020 grossed the country $ 1.8 billion. Although U.S. banks were banned from participating in such events last month, foreign investors still accounted for nearly 50% of all orders.
Russia has raised $ 1.8 billion in its first international debt placement since the US banned US banks from buying Russian government debt, reports The Moscow Times. On May 20, the Russian Ministry of Finance sold two tranches of Eurobonds (government debt coupons denominated in euros), guaranteeing an effective borrowing rate of 2.65% per annum on 15-year bonds and 1.37% on 6-year bonds. . International investors accounted for around 47% of purchases, with European banks making up a significant portion of the order book. Foreign banks preferred long-term bonds, buying 53% of those offered.
Meanwhile, U.S. financial institutions have been barred from buying Russian government debt, with U.S. President Joe Biden imposing his first round of sanctions on Moscow last month. According to the measures, US banks cannot directly buy Russian government bonds but are still allowed to hold and trade them on the secondary market.
A slight premium of 0.3% on bond borrowing rates can be considered fair value given global market conditions, said Dmitry Dorofeev, portfolio manager of Alfa Capital. Nevertheless, this is unlikely to baffle the Ministry of Finance, which is keen to demonstrate that Russia can still count on a multitude of banks and investors ready to invest in the country’s debt both at home and abroad. stranger, he said.
Other analysts consider that the impact of the latest sanctions is more visible. Timothy Ash, sovereign emerging markets strategist at BlueBay Asset Management, said Russia would have liked to sell its full annual target of $ 3 billion in the bond auction to avoid a second issue later this year. “People fear they will be stuck with bonds if the United States extends sanctions to secondary trade,” the strategist said. He pointed out that other emerging countries such as Saudi Arabia, Qatar and Abu Dhabi have recently concluded “much larger agreements. […] and at a much higher coverage rate – typically two to three times. “At the same time, Russia received orders of around two billion euros, a coverage rate of only 1.3.
The coverage ratio refers to the volume of potential orders placed in a bond auction relative to the amount of bonds sold, the Moscow Times explains. Investors place bids and indicate the desired rate of return. They can place speculative bids at much higher interest rates than they expect, so the bids are almost always oversubscribed. The seller then selects the offers he wishes to accept. Thus, a higher coverage ratio indicates higher demand and generally allows the seller to obtain better financing terms.
By Anna Litvina