It seems a strange time for investors to run back to embrace credits from the country.
Russia recently started air strikes on Syria, saying they are targeting Islamic State positions, but US-led allies and Turkey say non-Islamic state opponents of the Assad regime are being targeted. Several big issuers from the country remained sanctioned by the US and the EU.
But the numbers speak for themselves — Russian CDS rallied 27bp on Monday and spreads from the country have been largely stable in the turmoil that engulfed the rest of CEEMEA from mid-September.
Investors are looking so kindly upon Russia that Norilsk Nickel on Tuesday printed $1bn seven year from a $4bn book. It was the first corporate dollar benchmark from the country (with over a one year maturity) since November 2013. Russian oil and gas behemoth Gazprom followed on Thursday in euros.
The reasons for investors’ change of heart around Russia, and Russian corporates’ newfound willingness to print, are each small but together big.
First, there are the building technical reasons. The simple scarcity of Russian paper, especially from the corporates, makes it more attractive.
This year alone, there was $16bn of euro and dollar Russian paper with a maturity date scheduled, according to Dealogic data. Almost $4.5bn of that is just from Gazprom.
Secondly, Russian borrowers have had over a year to realise that they are in the doghouse, and that there is a price for being there.
Whereas other issuers from the CEEMEA region are balking at a 75bp new issue premium — the amount that leads reckon Norilsk offered at IPTs — the Russians are much less surprised by it.
Lastly, Russian issuers had their big sell off months ago.
Yes, they are affected by a lower oil price and a stronger dollar, but while the market only just seems to be realising this will affect the region, it’s been fretting about their effect on Russia for quite a while. As a result, the rouble hasn’t been looking too shabby in recent weeks either.
The market watched the Norilsk Nickel deal closely as an indicator of demand for the rest of the country and it the result was certainly encouraging.
There is no denying that Russia remains a risky investment. But EM investors picking between CEEMEA credits see picking a knife up off the floor as much safer than trying to catch one.