By Sarka Halas
After a year of record-breaking highs, Russian corporate bond issuance is set to drop next year, but the window remains open for some debut borrowers and an uptick in activity from junk-rated issuers.
It has been a busy year for European emerging markets and Russia in particular, as corporate borrowers from the country issued a record $39 billion in 2012, more than double the $21.7 billion issued in 2011, said analysts at Societe Generale in a recent report.
In an era of historically low interest rates, Russian borrowers saw strong international investor demand for their debt with investors keen to increase their exposure outside of the euro zone's economic crisis, while picking up better returns.
But while 2012 may have been a bumper year, the record levels seen are unlikely to be exceeded in the new year. According to analysts at Raiffeisen Bank, Russian companies need to refinance as little as $9.5 billion in the international debt market.
"We think that Russian banks will be less active in the primary [bond] market next year, due to a contraction in their lending and no significant needs to borrow for foreign exchange purposes," said Alexander Sklemin, credit research analyst at Raiffeisen Bank International.
"However, there may be some opportunistic issuance and a number of players may also tap the subordinated debt market," he added.
NOMOS Bank (NMOS.RS) and Sberbank (>> Sberbank Rossii OAO) are reportedly planning subordinated debt issues. The debt is riskier for investors because it sits low in a bank's capital structure. It is subordinated to senior bondholders. Russian subordinated debt totaled $8.8 billion for 2012 due to regulatory requirements, while 2011 saw just one $800 million subordinated bond sold by Russian Agricultural Bank, said Morgan Stanley analysts in a recent report.
Mr. Sklemin said Rosneft (>> Rosneft' NK OAO) will likely be the largest and most frequent Russian corporate borrower and is set to raise around $7 billion in the bond market as the oil and gas giant looks to fund its $55 billion buyout of TNK-BP.
Besides Rosneft, oil and gas companies will probably be less active on the international bond markets as they will be able to finance their investment spending from cash flows, while the metals and mining sector will likely trim capital expenditures.
Although the market may see fewer of the well-known Russian names in 2013, Mr. Sklemin says that the market is favorable for Russian high-yield credits, including a few debut placements. Fertilizer company PhosAgro OJSC (PHOR.MZ) may issue $500 million as early as the first quarter 2013, while electricity company Inter RAO (>> INTER RAO EES OAO)is also considering a bond placement next year, said Mr. Sklemin.
Russian companies started piling into the international bond market after the government sold 5-year, 10-year, and 30-year debt in international markets in March --opening the market for Russian companies to follow.
This year, Russia accounts for 28% of total international issuance from the Central and Eastern Europe, Middle East and Africa region, and is at its highest share since 2008, when it had 35% of the CEEMEA pie, according to Dealogic data.
Write to Sarka Halas at [email protected]
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