Ot: Russian Bond Market

[Kf6vci]

[/bhttp://www.bloomberg.com/apps/news?pid=20601109&sid=a6vxWuczSkls&refer=home

‘Dead’ Russian Bond Market’s 80% Yields Squeeze Firms (Update2)

By Laura Cochrane and Denis Maternosvky

Feb. 11 (Bloomberg) -- Russian companies, the biggest emerging-market borrowers during the last three years, are shut out of the international bond market after yields jumped sixfold since August amid plunging energy prices and a weakening ruble.

No Russian company has raised money through foreign bond sales since August, compared with $80 billion raised by more than 200 companies in Latin America and Asia outside of Japan, according to data compiled by Bloomberg. Yields on bonds due next year from Moscow-based Transcapitalbank and JSC AIKB Tatfondbank in the Russian republic of Tatarstan are trading at yields above 80 percent, up from 12 percent in August.

“The primary market is dead,” said Stanislav Ponomarenko, a fixed-income analyst at ING Groep NV in Moscow. “I wouldn’t be too surprised if there are no bond deals done by Russian corporates for most of 2009, if not the entire year.”

The credit squeeze will force companies to rely on government bailouts to refinance their debt or face default, according to MDM Bank, VTB Group and Commerzbank AG. International banks proposed talks with Russian companies that owe $400 billion in the next four years, the Russian Association of Regional Banks said yesterday.

Financing became strained as Urals crude, the country’s main oil export blend, slumped 69 percent from a July record to $45 a barrel, below the $70 average required to balance this year’s budget. The decline in revenue will push Russia into its first recession since the 1998 financial crisis, according to the Economy Ministry.

Shortfall

The worsening economy spurred investors to pull at least $290 billion from the country since Aug. 1, according to BNP Paribas SA, and triggered a 35 percent slide in the ruble against the dollar, increasing the cost of servicing foreign-currency debt. The ruble strengthened 1.9 percent against the dollar today. The central bank drained more than a third of its foreign currency reserves to stem the decline.

While investors “fear massive defaults” on some of the $100 billion of Russian debt due in 2009, the concern is “overstated,” Troika Dialog analysts Andrey Kuznetsov and Kingsmill Bond in Moscow wrote in a research note on Jan. 19. Companies have between $20 billion and $30 billion of their own funds, will borrow between $30 and $40 billion from the government and will rollover another $30 to $40 billion of debt this year, according to the note.

“The shortfall is likely to be in the region of $10-$20 billion, but this is more likely to damage the weaker credits among smaller banks” rather than big corporations, the Troika Dialog analysts said.

Government Pledge

Russian companies won’t be permanently excluded from the market, said Paul McNamara, who helps manage $1.2 billion of emerging-market debt at Augustus Asset Managers Ltd. in London. “A top-tier corporate, or maybe a quasi-sovereign, may be able to issue,” he said.

Still, it may take at least six months for Russian companies to raise money on international markets unless the new debt is government-backed, Andrei Kostin, chief executive officer of VTB Group, the nation’s second-biggest lender, said in an interview Jan. 29. Moscow-based VTB Bank has $11.7 billion of debt due in the next 12 months, Bloomberg data show. Only state-run OAO Gazprom owes more in short-term debt among companies in Russia and eastern Europe, with $13.3 billion due to mature.

The government has pledged more than $200 billion in loans and tax cuts to companies, and will be the main source for repaying the $60 billion of publicly-traded foreign corporate debt due this year, said Nigel Rendell, senior emerging-markets strategist at RBC Capital Markets in London, citing Fitch Ratings data.

Restructuring

International banks suggested meetings with Russian companies concerning their ability to meet obligations, Anatoly Aksakov, head of the regional lenders’ association, said in an interview yesterday. Less than $100 billion of international debt may need to be restructured, $15 billion of which is due this year, he said.

OAO Nutrinvestholding, the parent company of Russia’s largest baby-food maker, missed interest payments to holders of its $50 million of bonds due in 2049. The company’s cash was “tied up in illiquid investments,” Standard & Poor’s said in a report Dec. 12, when it cut its rating to “selective default.”

United Co. Rusal, Russia’s biggest aluminum producer, said yesterday it aims to agree on restructuring debt with lenders in the next two months. Moscow-based Rusal owes $16.3 billion to Russian and foreign lenders as well as one shareholder, billionaire owner and Chairman Viktor Vekselberg said on Jan. 30.

Limit on Withdrawals

Transcapitalbank, which had 1 billion euros ($1.3 billion) in assets as of July, sought a $15 million loan from the European Bank for Reconstruction and Development in December, according to its Web site. The bank is rated four levels below investment grade at B1 by Moody’s Investors Service. The yield on its $175 million of bonds due in 2010 surged to 81 percent from 12 percent in August, according to prices on Bloomberg.

“We intend to fully pay all of our obligations,” Dmitry Sakharov, head of fixed income at Transcapitalbank, said in a phone interview yesterday.

Tatfondbank, based in Tatarstan’s capital city Kazan, introduced temporary limits on cash withdrawals last year, Moody’s said in a report in November. The bank received about $300 million from Russia’s central bank, according to Moody’s, which said it may cut its rating of B2, five levels below investment grade.

Tatfondbank’s $200 million of bonds due 2010 yielded more than 100 percent last month, and were last quoted at an 83 percent yield, Bloomberg data show. The bank’s ruble-denominated bonds due in 2011 yield 20 percent.

‘Highly Illiquid’

The dollar bonds are “highly illiquid,” said Leonid Slipchenko, an analyst at UralSib Capital in Moscow. Investors couldn’t buy the securities on the “open market,” he said.

“We have balanced assets and liabilities,” Tatfondbank spokesman Alexander Tsyganov wrote in an e-mailed statement today. “At the time the Eurobonds are to be repaid, we will receive payments from clients who were lent money in foreign currency. Because of that, we believe that the repayment will proceed successfully.”

The yield on OJSC Kazanorgsintez, a chemical manufacturer also based in Kazan, jumped to more than 90 percent in November from 10 percent in August, according to prices on Bloomberg from Troika Dialog in Moscow. Fitch Ratings said Jan. 26 the company faces “liquidity and financing issues as a result of deteriorating market conditions.”

Commodities

The company’s $200 million of notes due in 2011 are now trading for less than half face value at 47 cents on the dollar and a yield of 42 percent. Kazanorgsintez is rated seven levels below investment grade at CCC+ by Standard & Poor’s and eight levels below at CCC by Fitch Ratings.

Liliya Nuretdinova, head of investor relations and public relations at Kazanorgsintez, didn’t return calls yesterday.

Record commodity prices helped fuel nine years of economic growth in eastern Europe and Russia, where companies expanded by borrowing in foreign currencies from banks in western Europe and the U.S. Russia accounted for about 27 percent of emerging-market corporate bond sales in the three years ending Dec. 31, Commerzbank figures show.

Companies in Russia sold an average $1.6 billion of bonds every month last year and about $3 billion every month in 2007, according Moscow-based MDM Bank. In the same six-month period to Feb. 10 last year, Russian companies raised $6.2 billion in the international bond market, Bloomberg data show.

‘Deep Trouble’

Demand for Russian bonds reached the lowest in at least five years last month, pushing the average price of ruble-denominated corporate debt to 78 cents on the dollar on Jan. 28, according to the Micex Russian corporate bond index.

Bonds sold last year by Promsvyazbank JSCB, the lender controlled by billionaire brothers Dmitry and Alexei Ananiev, trade for about 50 cents on the dollar, Bloomberg data show. The yield on the $100 million of notes due 2018 more than doubled to 28 percent from 12.5 percent.

“If a company doesn’t have access to state funds, it is in deep trouble,” said Mikhail Galkin, head of fixed-income research at MDM in Moscow.

-- With reporting by Zoya Shilova, Yuriy Humber and Will Mauldin in Moscow. Editors: Gavin Serkin, Laura Zelenko

To contact the reporters on this story: Laura Cochrane in London at [email protected]; Denis Maternovsky in Moscow at [email protected]

Last Updated: February 11, 2009 11:07 EST

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[midas]

Thank you Kf6vci for this. Every piece of the global jigsaw puzzle is interesting.

I wonder how serious Russia's economic situation can get and how it will compare

chaos they experienced just after the fall of communism?

[Kf6vci]

Well, after the fall of Communism, the country wass opoenly looted by a bunch of crooks. Taske the "auctions" of oil assets. EXXON, SHELL & Co. bid billions but some Mafia insiders "won" for some $ 100 million etc. etc.

The last crisis was 1998. Look back to 1998 and be afrai9dm be very afraid!

Russian bond issuers and debtors are cowering behing the mighty government, trying desperately to "renegotiate" with foreign lenders.

Another tickling bomb...

Now consider that the state needs an oil price of > $ 70 just to break even...

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Some humor: have you heard Putin promising there won't be a devaluation of the Rouble?

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Back to Thailand. This is just an example showing how connected the world these days is. just like some crook named Madoff cons investors and next, all these banks get exposed as victims, too. Spanish, Kuwaity and many other banks...

[geriatrickid]

This has some positive implications; Putin was financing his big military buildup with oil revenues. Without that money he will have to choose beween giving the unwashed masses beer and vodka or buying weapons. It also means that he can't finance certain groups and governments.

The downside is that Vlad the karate king might just not be too upset if someone somewhere did something that caused oil prices to increase.

[midas]

Well, after the fall of Communism, the country wass opoenly looted by a bunch of crooks. Taske the "auctions" of oil assets. EXXON, SHELL & Co. bid billions but some Mafia insiders "won" for some $ 100 million etc. etc.

The last crisis was 1998. Look back to 1998 and be afrai9dm be very afraid!

Yes indeed.................

In the 1990's I remember seeing a documentary about the rusting fleet of nuclear

submarines near Vladivostock that absolutely NO security and how anyone could get access to them

and take away any " souvenirs " they wanted. People were keeping bits of radioactive

material in their draw under their shirts...................................

i just hope someone is keeping a secure watch on the arsenal..................?