Vneshtorgbank bond issue disappoints analysts
Vneshtorgbank, Russia?s second largest bank, issued a record bond issue of RUR 15 billion at an interest rate of 6.2 percent per annum. An effective yield on the bonds is 6.35 percent.
The bank is pleased with the results but analysts are disappointed, saying that speculative demand was low and the lion?s share of the issue was purchased by a group of large financial corporations formed shortly before the issue, which is a sign that the bond issue was a foregone conclusion. Observers said they had expected "more aggression" from the state bank.
This is Vneshtorgbank?s fifth bond issue, and it is the largest ever issue on Russia?s bond market. The duration period is eight years. The offer is valid over the next year and a half, at a nominal price of RUR 1,000 per bond. Rates for the second to sixth coupons are the same as for the first coupon, but rates for other coupons are determined by the issuer. Vneshtorgbank acted as the organizer, underwriter and paying agent of the issue. A few days ago it formed a syndicate of buyers, including Vnesheconombank, Gazprombank, Petrocommerce, NOMOS BANK, Citigroup, Soyuz Bank, ABN AMRO, ING Bank (Еurasia), Investbank Finance, International Moscow Bank, Russian Bank for Development, Alfa Bank, Reiffeizenbank and Centercredit Bank.
Initially, Vneshtorgbank planned to issue the bonds at 5.95 percent per annum. But the situation on financial markets worsened shortly before the placement, and the bank reviewed its forecast for a fair price of the 1.5-year offer to between 6.2 and 6.35 percent, in accordance with rates for the first to sixth coupons at 6.06 to 6.2 percent. The forecasts proved to be right. The interest rate on the first coupon was set at 6.2 percent (RUR 15.46 per bond). The effective yield for the 1.5 year put option is 6.35 percent a year.
The bank said 66 applications had been made during the placement, at a total value of RUR 16.7 billion and with an interest rate of 6 to 6.75 percent. Forty seven applications were successful during the auction. The whole bond issue was placed on the first day. Vneshtorgbank said foreign investors had bought about 35 percent of the issue. The bank?s representatives were unavailable for comment, but insiders say the bank?s managers are happy with the results.
Analysts are more critical. "The bank chose bad timing for the placement," an analyst at ATON told RBC Daily. He pointed to two factors. First, the world?s financial market was unstable. A successor has recently been named for Alan Greenspan, Chairman of the U.S. Federal Reserve System who has occupied the post for almost two decades. A new man is likely to bring something new to the United States? monetary and credit policy. Bond prices are falling amid fears of a hike in U.S. interest rates. American bonds were the worst affected; European and Russian bonds also took a hit.
Another factor is that Russian companies are now making monthly tax payments to the state. "As a result, there?s a strong deficit of ruble liquidity on Russia?s market, and interbank overnight rates rose to seven to eight percent. Under the circumstances, Vneshtorgbank bond yields at 6.2 percent look low," the analyst said, noting that a rate of 6.5 percent would be more adequate. "Perhaps this was to attract a greater number of investors. The demand for Vneshtorgbank bonds was rather low," he added. The analyst thinks this is a temporary situation, and interbank interest rates are likely to fall again next week. At this point, Russian banks are inclined to sell rather than to buy low-yielding bonds. It might be reasonable to postpone the issue but this would affect the bank?s image.
Anastasiya Zalesskaya, a debt analyst at Uralsib, agrees. "Vneshtorgbank was unlucky: when it planned the issue price, the situation was better than it is now. Initially, the bank wanted to place its bonds at 5.95 percent. But it sold its bonds at 6.35 percent," she told RBC Daily. Analysts had wanted something else, she said. Looking at a syndicate of buyers, including many large and solid banks, they forecast a rate of between 6 and 6.25 percent. "We thought the bank would be placing its bonds more aggressively," Zalesskaya stressed. The syndicate purchased the lion?s share of bonds, analysts say. "Demand at the auction reached RUR 16.7 billion, while the size of the issue was RUR 15 billion. In other words, there were unexpected investors. I think the syndicate bought the largest part of the issue. That?s why speculative demand was low. With interest rates rising on Russia?s monetary market, there was no point in speculators buying low-yield bonds," she said.
Analytical department of RIA RosBusinessConsulting
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