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Last updated: April 22, 2010 10:04 am
Russia will on Thursday raise at least $4bn in its first Eurobond in more than a decade.
The sovereign bond is to be issued in two tranches of five- and 10-year maturities, with the five-year tranche priced 125 basis points above US Treasuries and the ten-year tranche priced 135 basis points above Treasuries, said people familiar with the situation.
The minimum size of each tranche will be $2bn, while the exact size will be announced on Thursday morning.
The issue is a pivotal moment for Moscow, which adopted a conservative spending policy after the country’s 1998 default. With $447bn (€333bn, £290bn) in reserves the government does not need to return to the debt market but is seizing the Eurobond as a way to improve Russia’s financial image abroad and help companies attract better financing rates.
Russia’s 30-year sovereign bond recently hit an all-time high, at a time when emerging market spreads were near pre-crisis levels.
“The market is very hot for new issues . . . but there’s a possibility that in a couple of months there will be a correction. Valuations at the end of year are not necessarily going to be positive for the investors that are participating in this placement,” said Marina Vlasenko, Commerzbank’s lead emerging markets credit analyst in London.
Demand for the bond was said to be “well oversubscribed” yet some said the final pricing followed tense negotiations between the book-runners and Moscow after the state tried to get better pricing.
“In these discussions it’s always very difficult to understand what’s going on in the minds of these people, especially bureaucrats who have no experience, having been absent from the market for the past 15 years,” the person said. Moscow is returning to the debt market to finance its estimated 6-7 per cent 2010 fiscal deficit and to set a yield curve for Russian companies which hope to borrow about $17bn abroad this year.
Russia’s finance ministry first travelled to the City to meet investors in November and has spent the following five months trying to woo investors – a reason for deciding to not price the issue higher, said Boris Ginzburg, head of fixed income at UralSib, the investment bank.
“They’re trying to leave some upside on the table to create a kind of rally and attract investors to Russia.”
Additional reporting by Anousha Sakoui in London
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