RosinterBank is meeting investors in Hong Kong for a proposed Rmb500 million ($82 million) debut renminbi-denominated bond offering, which would be the first from a Russian privately owned company.
The move comes at a highly sensitive time for Russian sentiment following the country’s escalating crisis with Ukraine and the tensions surrounding the shooting down of Malaysia Airlines Flight 17.
RosinterBank, a mid-sized lender, may find issuance difficult as bond investors are taking their risk appetite away from the country.
Some Russian financial institutions, such as Gazprombank, Russian Standard Bank, Rosselkhozbank and VTB Capital, have tapped the dim sum market since last year but they are all big state-owned enterprises. Other SOEs including the world’s largest natural gas company Gazprom are also considering dim sum bond issuance.
The US economic sanctions announced in March against Russia for the escalating Ukraine crisis prompted Fitch Ratings, Moody’s and Standard & Poor’s to switch the country’s outlook rating from stable to negative.
Further sanctions from the US are possible and the European Council also announced that it will expand restrictive measures.
“The additional sanctions may cause a fresh spike in investor risk aversion, and we believe relations between Russia and the west will remain strained,” said Fitch Ratings in a report.
There has been a reduction in the willingness of foreign lenders to finance Russia and Russian borrowers, said Fitch. “Many companies have been shut out of global bond markets following the onset of [the] Ukraine crisis.”
Total bond issuance by Russian borrowers fell 56% in the second half of last year and dropped a further 69% in the first half of 2014, according to the rating agency. In Hong Kong, Russian issuers raised $603 million through dim sum last year but only $164 million this year.
More credit downgrades could be seen if the domestic growth deteriorates further and in particular if lower growth was to negatively affect Russia’s fiscal and external accounts. The country’s Ministry of Economy revised down its 2014 growth forecast to 0.5%, compared to first quarter’s real growth of 0.9%.
“It’s too risky to look at the country now, no matter the bonds are issued by investment-grade [rated] or high yield borrowers,” said a Hong Kong based investor with a large Chinese financial institution, when asked about the interest in bonds from Russia.
Nevertheless, RosinterBank, a mid-sized privately owned lender with total assets of more than $1.3 billion as of end-2013, will be an interesting test.
The bank is looking to complete the offering by August.
The offer comes after Russia and China's $400 billion natural gas deal in May. Russian-Chinese trade increased by 1.1% to nearly $90 billion in 2013 and had 10.8% year-on-year growth in January this year, China's General Administration of Customs said on February 12.
Some investors, including private professional investors, private banks and investors for high yields, have expressed interest in the planned dim sum bond, according to a source close to RosinterBank.
RosinterBank does not have a rating from global agencies but it was rated A and given a stable forecast by local credit rating company Expert RA. The rating equates to a B+ when compared to the global rating agencies’ criteria, said the source close to the bank.
The deal does have one or two things in its favour. RosinterBank may be less impacted by the sanctions than SOEs because it has few links with the state or with state officials.
In fact, it could even benefit as people have started to reduce risk by transferring their deposits from state-affiliated banks to private banks, said the source.
Money transfers connected with RosinterBank’s dim sum will be conducted through direct corresponding accounts in Bank of China (Hong Kong) and Agricultural Bank of China in Beijing. This could also help to avoid the risk of a money suspension or block.
Proceeds from the dim sum bond will be used to finance the bank’s domestic clients who are keen to expand their presence in China and to develop cross-border business between the two countries.
