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.

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