Russia took advantage of the easing of tensions between Moscow and Washington to raise 1.5 billion euros from investors during its first sale of international bonds of the year on Thursday.
Russia’s finance ministry has received € 2 billion in orders for six- and 15-year euro-denominated bonds in a sale that comes just a month after the United States imposed sanctions on the sale of Russian debt in local ruble.
These sanctions hit the Russian asset market only briefly, with investors deeming them among the softest steps the administration of US President Joe Biden could have taken as it sought to punish the regime of Russian President Vladimir Putin. for actions, including an alleged cyber-hacking campaign and the imprisonment of the opposition. leader Alexei Navalny.
Markets were further bolstered this week by a cordial meeting between US Secretary of State Antony Blinken and his Russian counterpart as the two sides negotiate an alleged summit of leaders of the two countries, helping the ruble to reach its highest level. high in two weeks against the dollar. . The Biden administration has also chosen to lift some sanctions on the Nord Stream 2 pipeline that Russia is building to Germany.
“Over the past two weeks the rhetoric has been quelled and there is talk of Putin and Biden reuniting, so now is the perfect time for them to issue,” said Uday Patnaik, head of emerging market debt. at Legal & General Investment Management. . “It’s quite opportunistic.”
Russia sold € 1 billion of a new bond maturing in 2036 at a yield of 2.65%, and completed a 2027 bond issued last year for an additional € 500 million. Three Russian banks – Gazprombank, Sberbank CIB and VTB Capital – organized the sale.
Andrey Solovyev, global head of debt capital markets at VTB Capital, said in a statement that investors had placed more than 100 orders for each of the bonds.
Russian investors bought 47% of the 2036 bond, of which 22% went to buyers in Germany and Austria, 14% in the Middle East and Asia, 7% in the UK and 6% in France. Russian investors bought 65% of the 2027 issue, investors in the Middle East and Asia bought 20%, and French investors bought 11%.
The transaction was the first sale of foreign currency debt since another euro-denominated sale in November. Russia has not sold dollar bonds since U.S. investors were not allowed to buy them in the primary market in 2019.
The new sanctions also prevent US investors from buying new Russian ruble debt issues. Moscow claims it can replace this demand locally and, in a show of force, has sold the bulk of some recent issues to state-owned banks like VTB.
Despite existing sanctions on Russian bonds and the threat of further action from the United States or its allies, investors are drawn to the country’s relatively high yields and low debt levels. No less than 54% of Russian Eurobonds are held by non-residents, even as the share of foreign investors in domestic bonds fell from 35% last year to 19% last month.
Thursday’s yield compares to a yield of 0.19% on the German bond with an equivalent maturity, which serves as a benchmark for debt sold in euros.
Despite this, borrowing costs represent a significant additional return over similar Russian bonds traded on the secondary market, a result of the nervousness of many Western investors to enter Moscow’s debt markets.
“There is always a risk of sanctions,” said Patnaik, who decided not to buy on Thursday’s sale despite being attracted by the yield offered. “It is not worth the trouble.”