Sovereign rating boost spurs Russia’s retail giant to issue $1bn Eurobond
Russia’s state-owned retail giant Sberbank issued its first Eurobond last month. The bank is the first to cash in on ratings agency Moody’s surprise decision to award a two-notch upgrade to the sovereign rating – taking Russia into investment grade territory.
Analysts had been expecting a Russian upgrade, but were surprised by
the speed of last month’s decision to increase Russia’s rating to Baa3,
the lowest of the investment grades.
The former communist retail bank, Sberbank holds 70% of deposits in
Russia. With its quango status and virtual monopoly over ordinary
people’s deposits, the bank is seen as unsinkable. Sberbank is one of a
handful of Russian banks that enjoy an explicit government guarantee on
all money deposited, a privilege that will be dropped once a deposit
insurance scheme, currently in the Duma, is set up.
Holding the only source of long-term money in Russia, the bank has
refrained from issuing Eurobonds until now, but investment grade has
made Eurobonds a more attractive source of money.
As expected, Moody’s also rated the Sberbank Eurobond at the investment
grade of Baa3, allowing the bank to issue a three-year $1bn bond – by
far the largest bank bond issue to date – at Libor plus 1.75, about 5%
less than the commercial banks have attracted.
Fitch rated the bonds at BB+, one notch below investment grade. Fitch
and Standard and Poor’s are more sceptical about the possibility of
upgrading Russia to investment grade. They acknowledge Russia’s
spectacular macroeconomic recovery and solid state finances, but say
they want to see more progress with structural reform before they
upgrade Russia again. Analysts don’t expect either agency to upgrade
Russia until after the presidential elections, slated for next March.