Russia plans Eurobond sale before Biden acts on sanctions

Russia is seizing on a market rally after the U.S. election to sell its first Eurobond in more than a year.

The sale will allow Russia to lock in low borrowing costs now in case U.S. President-elect Joe Biden takes a tougher stance toward Moscow. Emerging-market bond yields fell to a record low this week on expectations of increased stimulus and a coronavirus vaccine.

“It’s a favorable time to sell,” said Maria Radchenko, an analyst at Renaissance Capital in Moscow. “Sanctions rhetoric has quieted down and risk appetite has increased sharply since the elections.”

The Finance Ministry plans two euro-denominated bonds maturing in 7 years and 10 or 12 years, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. Gazprombank JSC and Sberbank CIB were appointed joint bookrunners and VTB Capital will handle Russian accounts.

Washington barred U.S. investors last year from taking part in non-ruble sovereign debt sales and a bipartisan group of senators have proposed extending the restriction to ruble debt. Russia is ready for such an eventuality and a recent decrease in the share of foreigners in the market will soften the blow, First Deputy Prime Minister Andrey Belousov said in an interview with state news service Tass on Tuesday.

The comments were the first sign Russia is preparing for a change of administration in the U.S. after the Kremlin said Monday it would hold off congratulating Biden until the official tabulation of results.

Local Borrowing

Russia’s foreign-currency reserves are the fifth-biggest in the world, and its debt to gross domestic product is among the lowest, so the country doesn’t urgently need to tap international markets. The Finance Ministry chose to boost borrowing from local banks to fund stimulus this year.

Russia last sold new euro-denominated bonds in November 2018. It tapped the issue in March last year. The yields on those notes, due in 2025, spiked to 2.55% at the peak of the coronavirus panic in March, but have since fallen to 0.79%.

The ministry also visited foreign bond markets in June last year, when the Finance Ministry tapped notes maturing in 2029 and 2035 for a total of $2.5 billion.

More on Russia’s Last Sale: Russia Returns to Eurobond Market With $2.5 Billion Tap

“They want to issue something in the euro market from time to time, in order to keep their investor base,” said Pavel Mamai, a fund manager at Promeritum Investment Management LLP in London. “They chose the timing well.”