Комментарий Николая Подгузова, Руководителя отдела стратегии на рынке инструментов с фиксированной доходностью ВТБ Капитал, для Euroweek (UK)

17 Декабря 2011
Russian credits delay, but sovereign stands firm


Euroweek (UK)

Although last weekend's protests are unlikely to escalate like the confrontations seen across the Middle East this year, they were Russia's biggest since the early 1990s. Activists disputed parliamentary elections in which the ruling United Russia party achieved 49%, though it will no longer have a majority in the lower house of parliament.
The resulting selloff has left Russian credits facing higher new issue premiums. But although others may follow the postponements of Gazprombank and VEB, bankers still expect the sovereign to mandate banks for a new issue before the end of the year. Russia recently issued a request for proposals.
"The Russia Eurobond could go ahead regardless of the situation, but they will be pushing lead managers to get them the best price and they may end up looking for more favourable timing," said Nikolay Podguzov, head of bond strategy at VTB Capital in Moscow.
Russia now trades 15bp inside Turkey, having been around 30bp-40bp inside before the protests started. The most liquid non-sovereign Russian bonds, such as Gazprom's, have sold off by around three points over the period, while the local equity market has fallen further.
"VEB didn't cancel the placement because of the overall lack of demand," said a Moscow-based analyst. "It was a pricing issue. They could have gone ahead with a higher premium. We will find the same thing next year.
Investors will use it as an opportunity to request an additional premium, but if that's paid they'll be happy to play."
Syndicate officials in London agreed. "Clearly there's been a negative effect from these protests and investors are wary. But if there are windows of opportunity in the news about the eurozone deals will still get done," said one.
"It will be difficult to separate the political premium from the usual new issue premium for volatility in the wider market. Issuers need funding and they'll print when they can."
Another local analyst in Moscow said he did not expect further Eurobond falls in the near term because of a change in the type of investor holding the paper. "There is a scarcity of Russian Eurobond paper as the pipeline was cannibalised by the rouble market this year, which is helping to support prices," he said.
"Investors aren't selling Russian paper but the banks' trading desks have been. Now the paper is in the hands of buy-and-hold investors the fall in prices will stop - the political uncertainty has been priced in."
However the Eurobond sector is not the only option for issuers in 2012. Russia has a deep domestic market, and that has eaten into much of the new Eurobond pipeline this year.
So far this year $22.9bn of Russian international bonds have been issued, compared with $30.9bn in 2010. Some $10.3bn is due to mature in 2012, according to Dealogic data.
International DCM desks hope Russian issuers can be persuaded to print deals next year. However, they may again find themselves shunned in favour of the local bond market where investors are less spooked by the recent political turmoil.
"The need for funding for Russian companies and banks could probably be done in the domestic market, which is still working well," said Podguzov. "That market has a favourable interest rate environment and while political uncertainty remains it may be more stable."
"Domestic investors are more confident as they have broader access to information and what is going on than foreigners, who get their information from international news which isn't enough to paint a clear picture," he added.
No regime change
Few investors believe that a change in power is imminent. The state has funds to pacify its citizens. The prime minister, Vladimir Putin, is already making comments about what can be done to rebuild trust and show that he is listening to the electorate's fears. This week, for example, he suggested placing webcams in every electoral station in Russia as a way of combatting vote rigging.
"We're very unlikely to see regime change," said Tim Ash, head of CEEMEA research at Royal Bank of Scotland in London. "The situation is markedly different to the situation we saw in Egypt, for example, because the country has fiscal ammunition to play with - $100bn in its fiscal reserves, for example. There is also an underlying popularity for Putin.
"There's no real opposition - Prokharov running is not a solution. He's an oligarch, and the whole culture of oligarchy is part of the problem. The opposition is dissipated and the country's security operations are very much controlled by the government, so I can't see this escalating."
However, political influence over business is significant in Russia. While analysts do not expect the protests – the next is scheduled for December 24 - to turn violent, they worry about the eventual disintegration of political links with companies. Some business figures could then leave the country.
Some local companies fall into what one trader in London calls a "Putin portfolio". These are relatively removed from risk irrespective of their financial standing because of their closeness to the government. But if a change in power eventually takes place, even if below the presidential level, that protection could be removed.
"Russian citizens have begun to care about political freedom, and we have in mind five or six potential outcomes that are equally possible," said a third fixed income analyst in Moscow. "What is clear, however, is that the influence of the party is materially decreasing. Putin will be president as there is no clear alternative, but it will be a complicated process now without silent approval."
Even so, investors still view Russia's financial institutions favourably compared to those in many other countries.
Its banks and corporates are well supported by the government and the oil price is high. The country has a conservative debt to GDP ratio of 10%. It looks set to run a budget surplus of 1% by the end of the year, which puts it in a stronger position than many other developed and developing countries.
"Russia borrowed $30bn in the domestic market this year but that money was put into the reserve fund, not to finance the budget deficit," said Podguzov. "Next year will be the same, so the funding pressure isn't big."
Loans look forward
In the syndicated loans market there was relief that the Christmas break offers an opportunity for bankers to see how the situation develops. "I don't think it's the sort of thing that will put the brakes on transactions," said one banker in London.
"I'm not particularly concerned. Does it mean that Russian risk is any higher? It could mean that the country makes a further shift towards greater transparency and that will be better for everyone doing business there."

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