Russia Is ‘Considering Many Options’ for Reserves

Russia Is ‘Considering Many Options’ for Reserves

October 14, 2010, 12:13 AM EDT

(Adds international reserves from third paragraph,

Oct. 13 (Bloomberg) -- Russia is “considering many options” for diversifying its foreign-currency reserves, though policy makers are limited in the currencies they can choose from, Bank Rossii’s First Deputy Chairman Alexei Ulyukayev told reporters today in Moscow.

There are many currencies “with good potential” that are not fully convertible, which takes them out of consideration for reserves, Ulyukayev said. Russia wants a varied reserves make-up of liquid currencies because it decreases risk, he said.

Russia’s reserves, the world’s biggest after China and Japan, climbed to $494.4 billion in the week ended Oct. 1. The reserves are made up of 47 percent dollars, 41 percent euros, 10 percent pounds, 2 percent yen and a small amount in Swiss francs, Ulyukeyev said in a June 25 interview.

“We support diversification,” Ulyukayev said today. “It decreases the risks of managing reserves.”

--Editors: Willy Morris

To contact the reporter on this story: Maria Levitov in Moscow at mlevitov@bloomberg.net

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net

Business, Energy or Environmental regulations or discussions

‘Buy Orgy’ for Funds Spurs Company Eurobond Sales: Russia Credit

By Denis Maternovsky

Oct. 14 (Bloomberg) -- Russian companies from OAO Severstal to ZAO Alrosa are selling the most Eurobonds since before the credit crisis as the economy’s rebound and yields that top returns in the biggest emerging markets lure investors.

Severstal, the largest Russian steelmaker, diamond monopoly Alrosa and shipper OAO Sovcomflot are meeting bondholders this week and next amid plans to raise as much as $3 billion in the best month for issuance by non-financial companies since July 2008, according to data compiled by Bloomberg. The borrowers are stepping up sales after Russian banks sold more debt on overseas markets this year than at any time since 1998, the data show.

Companies are lining up sales after investors poured a net $39.5 billion into emerging-market bond funds, up from $1.6 billion in the first nine months of 2009, to bet on the fastest- growing economies, according to Cambridge, Massachusetts-based EPFR Global. Russian corporate dollar debt yields an average 386 basis points over U.S. Treasuries versus 342 for Indian company bonds and 314 for Brazilian, JPMorgan Chase & Co. indexes show.

“It’s been a buy orgy for funds,” said Sebastien de Prinsac, director of international fixed-income sales at Moscow- based OAO Gazprombank, the financing arm of Russia’s largest company. For companies, “it’s great time to print anything you can,” he said.

Alrosa Sale

Companies are raising funds abroad after the average yield on dollar-denominated Russian corporate bonds dropped to 5.4 percent from a high this year of 7.2 percent on May 25, according to JPMorgan indexes. Investors are becoming more confident in the economic outlook for the world’s biggest energy exporter after crude traded above $80 a barrel throughout October, beating the $60 level Finance Minister Alexei Kudrin said the nation needs for a sustained recovery from last year’s record 7.9 percent economic contraction.

Alrosa, based in Mirny, eastern Siberia, will begin investor meetings on Oct. 19 to sell $1 billion of 10-year dollar bonds, its first offering of foreign-currency debt since 2004, the company said this week. The yield on Alrosa’s $500 million of bonds due in November 2014 has dropped 270 basis points, or 2.7 percentage points, to a record-low 5.7 percent since May, data compiled by Bloomberg show. The yield is 115 basis points above OAO Sberbank’s 2015 dollar notes, the narrowest spread since Russia’s largest lender sold its securities in June.

Alrosa’s bonds are rated Ba3 by Moody’s Investors Service, three levels below investment grade and six short of Moscow- based Sberbank’s A3. Andrei Polyakov, a spokesman for Alrosa in Moscow, declined to comment.

Severstal

Severstal is meeting bondholders this week for its first sale of dollar bonds since July 2008, when the Moscow-based company issued $1.25 billion of 9.75 percent notes due July 2013. The yield has tumbled to 14 basis points below the average for Russian corporate dollar bonds, the biggest discount since the bonds were sold in 2008, according to Bloomberg data. The steelmaker’s notes were yielding 180 basis points more than the average in May and 70 more in September, the data show.

Proceeds from the new Severstal bonds will be used to repurchase some of its securities due in 2013 to lengthen the average debt maturity, Natalia Ivanova, a Moscow-based spokeswoman for Severstal, said in an e-mailed response to questions. Severstal “is taking advantage of the favorable Eurobond market conditions to proactively manage its debt portfolio,” Ivanova said.

Sovcomflot, the state-owned shipping company based in Moscow, is meeting investors in Europe and the U.S. this week and next for its debut offering of benchmark dollar bonds, according to a banker with knowledge of the transaction. Andrey Kechashin, a spokesman in Moscow, declined to comment.

Bank Bonds

While Russian banks sold $4.4 billion of international bonds in the third quarter, non-financial companies have been absent from the market since June, when OAO Mobile TeleSystems, Russia’s largest mobile-phone company, raised $750 million. Gains in the company’s 8.625 percent five-year securities reduced the yield to 6.126 percent yesterday, the lowest since the sale, data compiled by Bloomberg show.

“Rates are low and the appetite is there for good Russian issuers,” Joshua B. Tulgan, MTS’s director of investor relations in Moscow, said in e-mailed comments.

The extra yield investors demand to hold Russian debt rather than U.S. Treasuries fell 12 basis points to 199 yesterday, according to JPMorgan EMBI+ Indexes, dipping below 200 for the first time since May. The difference compares with 134 for debt of similarly rated Mexico and 176 for Brazil, which is rated two steps lower than Russia’s Baa1 ranking by Moody’s.

Falling Yields

Advances in Russia’s dollar bonds due in 2020 cut the yield by 12 basis points to 4.144 percent, the lowest since the bonds were issued in April. The yield on the government’s ruble notes due in August 2016 fell 4 basis points to 7.11 percent.

The yield spread on Russian bonds is 49 basis points below the average for emerging markets, down from a 15-month high of 105 in February, according to JPMorgan Indexes.

The cost of protecting Russian debt against non-payment for five years using credit-default swaps declined 6 basis points to 135 yesterday, according to data provider CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

Credit-default swaps for Russia cost 1.5 basis points less than contracts for Turkey, which is rated four levels lower at Ba2. Russia swaps cost as much as 40 basis points less April 20.

Ruble Forwards

The ruble was unchanged at 30.100 per dollar in Moscow trading yesterday. Non-deliverable forwards, or NDFs, which provide a guide to expectations of currency movements and interest rate differentials and allow companies to hedge against currency movements, show the ruble at 30.3363 per dollar in three months.

This month’s planned sales signal the biggest month for Russian corporate issuance since July 2008, when OAO Transneft and Severstal led $4 billion of international bonds, according to data compiled by Bloomberg. Borrowers have trimmed foreign- currency debt sales since the global credit crisis, relying on the domestic markets. Ruble bond sales have reached a record 595.6 billion rubles ($19.8 billion) this year, topping the $16.5 billion of foreign-currency debt issuance, data compiled by Bloomberg show.

“It is just the beginning,” said Luis Costa, an emerging- market debt strategist at Citigroup Inc. in London. “As the de- leveraging takes place in the corporate sector, Russian blue chips will get more comfortable coming back to the Eurobond market.”

To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

Last Updated: October 14, 2010 01:11 EDT