Raiffeisen Bank International (RBI) pulled the new issue leg of the refinancing of its €650m 8.659% additional tier one (AT1) on Wednesday as fresh concerns emerged over a planned asset swap with sanctioned Russian businessman Oleg Deripaska.
RBI is no stranger to tier one troubles: it has skipped the call on the bond it intended to refinance three times already — and unless it manages to raise new AT1 before the next call date on June 15, a fourth is likely.
Of course, AT1 notes are perpetual instruments and RBI is well entitled to keep the bond outstanding for as long as it wants.
RBI says its purchase of Deripaska’s stake in Austrian construction firm Strabag is lawful, as is its option not to call its AT1s — but, to some observers, neither might seem to be in keeping with the spirit of how things should be done.
Until things went south on Wednesday, investors clearly liked RBI's new AT1 trade. It had garnered a €1.6bn book for the €650m no-grow trade at the last update, allowing the bank to bring the yield in by 37.5bp.
But the AT1 market works because issuers are expected to call and refinance paper rather than leave it outstanding. Every call date where the option isn't exercised has the potential to sour investors against the credit. Similarly, they may not feel all that comfortable when the bank is doing business with sanctioned oligarchs, regardless of the details.
As long as the spectre of Russia haunts RBI then it will have to accept that the perfect trade is not always possible. The bank said a year ago that it was working to reduce its Russian business but it employs 9,000 people there, to give a sense of scale — it won't be swift.
It is unfortunate that news emerged during Wednesday’s bookbuild that US authorities were pressuring RBI to drop the Strabag deal, sending its share price sharply downward.
However, the bank will in time need to refinance and refresh its AT1 stack, and when it comes to do so it will need investors to like what they see. Juicy yields or smaller sizes might help the bank chip away at its refinancing requirements.
Perhaps it would be best that the bank bites the bullet and pushes forward with the refinancing exercise before June. A dream deal might not be possible — but for a bank in RBI's circumstances it might be said that any deal would be a successful one, especially if it keeps investors on side.