Three major Russian companies have tapped the Eurobond market this month and more are expected to join them, capitalising on lower borrowing costs as global central banks cut rates. After the summer lull, Russian companies stepped up activity on the Eurobond market and raised $1.6 billion in Eurobonds in the first three weeks of September.
Russia's steelmaker Severstal, petrochemicals company Sibur, and pipe producer Chelpipe launched dollar-denominated Eurobonds. Eurobond issuance has been supported by a flurry of global central bank policy easings. Russia's central bank cut rates on September 6, followed by the European Central Bank. Later in September, the US Federal Reserve delivered a second cut so far this year in an effort to support economic growth.
"Investors are looking into where they can earn more in such conditions, and emerging markets, including Russia, are in focus in that sense," Stanislav Bozhenko, an analyst at VTB Capital told Reuters. Russian Railways (RZhD), the state-controlled railways operator, as well as a mid-sized lender Sovkombank and State Transport Leasing Company (GTLK) have also hired banks for potential Eurobond deals, according to IFR, a Refinitiv financial data provider, and Interfax.
Bozhenko expects that more metal producers in Russia, seeking to optimise their debt burden, will look to Eurobonds that could raise another $2-3 billion by the year-end. In June, VTB Capital, one of the main organisers of corporate borrowing in the country, said up to 10 Russian companies were considering issuing Eurobonds in 2019, taking advantage of favourable market conditions.
In January-August, Russian companies raised a total of around $7 billion in Eurobonds, with currencies ranging from the US dollar and euro to the Russian rouble.
Rate cuts in the United States and in the Eurozone have also triggered sovereign bond placements by emerging economies. Armenia has issued a new bond worth $500 million for early repayment of its existing debt. Kazakhstan also plans to sell 1 billion euros in Eurobonds this year, to refinance some of the state railway company's foreign debt.
More Russian companies could also join the Eurobond drive in the next few weeks, Sergey Dergachev, emerging market debt manager at Germany-based Union Investment, said. "The situation is still good...There is limited risk from higher US rates, the US dollar is also supportive at the moment. And what is most striking is that reaction in the emerging market debt has been very muted after Aramco attacks," Dergachev said by email.
The attack on Saudi Aramco's oil facilities on September 14 knocked out more than half of the country's output or more than 5% of global supply. Russia, however, is unlikely to join its ex-Soviet neighbours as it has already fulfilled its 2019 borrowing plan.
In June, when Russia last raise $2.5 billion by tapping the global debt market, it set yields at 3.95% and 4.30% for its Eurobonds maturing in 2029 and 2035, respectively. The yield on the 2029 bond last stood at 3.40% and at 3.90% for the bond maturing in 2035.