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Russia & CIS

Russian corporates tuck into reserves

Russian corporates face large upcoming debt maturity repayments over the coming years, with the markets seeing a sharp rise in corporate debt buybacks. However, as many Russian entities have acquired large dollar reserves from previous issuances, many Russian bond buybacks are likely to be funded by reserves.

Jun 16, 2016 // 5:04PM

Russian corporates face around US$27bn worth of debt maturities in 2017 and US$37bn of maturities in 2018, according to data from Bloomberg. As a result, a number of Russian companies have recently issued new notes to service outstanding debts.

Sovcomflot issued US$750mn worth of bonds with a yield of 5.375%, Evraz issued a US$500mn bond at 6.75% and NLMK issued a US$700mn bond with a yield of 4.5% alongside the signing of a US$130mn loan.

Despite the recent flurry of activity from these corporates on the international markets, the drive for new issuances from Russian entities is still relatively low according to Yury Tulinov, Head of Research at Rosbank.

“This is because the yields that can be achieved are on the whole not particularly low, and top Russian corporates are able to find dollar funding in the domestic market at cheaper rates than are available in the international markets.”

The yield on Russia’s recent issuance in May was noticeably lower than those of the corporates that have come to market lately, with the exception of NLMK’s bond.

The sovereign US$1.75bn Eurobond, which was significantly larger than NLMK’s, carried a coupon of 4.75%.

Tulinov noted that there was also still the problem of Western sanctions, adding that some foreign investors are likely to remain cautious about buying Russian risk even if it is not directly affected by sanctions.

Although there have been a number of recent issuances from corporates such as NLMK, Russian entities are now quite cash rich.

"This explains why many are buying back debt; they are not in need of leverage and do not see attractive opportunities to invest in the domestic market.”

Tulinov said that corporates are using their cash buffers, which they have accumulated to repay existing debts early.

“We will nonetheless see sporadic issuance as the market is clearly open to Russian corporates, especially if they are not affected by sanctions. However, there will not be a significant increase in Russian corporate bond issuance in the near future.”

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