Last Friday, sole lead manager VTB Capital placed a new $4bn 11 year Eurobond for Russia with a yield of 4.625% and a $2.5bn tap of its 2047s at 5.25%. The deal is intended to finance a buy-back of up to $4bn of its outstanding 7.5% 2030s.
UK institutional investors bought 49% of the 2047 tap and 20% went to US investors. Some 35% of the new 2029 issue went to Russian investors, 34% to US investors and 22% was bought by UK investors.
While it could be argued that it is distasteful for Russia to be raising money, a large chunk of which came from the UK, at a time when it is being accused of having launched “an assault on UK sovereignty”, forging ahead with a bond is in Russia’s interest and does not break with the country’s narrative around the situation.
First of all, Russia denies the allegations and claims to have done nothing wrong. So from Russia’s point of view, why should it change its plans?
Secondly, despite talk of it earlier this year, there are no sanctions limiting Russia from raising funds in the bond markets. As GlobalCapital has previously argued, if the West wants to punish Russia in the financial markets, it actually needs to do something more than just wagging a finger.
Thirdly, there is clearly some fear that further sanctions may be rolled out. The 2029s offer repayment in euros, sterling, Swiss francs or roubles, which was understood to be a measure put in place to help protect investors in case further sanctions come. The bonds were also explicitly marketed as an opportunity for wealthy Russians who have funds outside Russia to repatriate their funds.
Fourthly, emerging markets DCM officials have been banging the drum about getting in early this year before US rate rises bite. Russia is no exception.
And last, but perhaps most importantly as pertains to the capital markets, people wanted to buy it. The outstanding bonds have barely budged since the start of the situation in the UK. And these new 2029 bonds drew a book of $7.5bn.
Emerging market investors are not an altruistic bunch. In the last year they’ve bought Saudi deals and Belarusian paper. Buying Russian bonds would not even count as a new low — they are even rated investment grade at Ba1/BBB-/BBB-. Investors — especially UK investors — should perhaps be criticised for buying the deal, but for the issuer, it’s a case of don’t hate the player, hate the game.