The Russian government is struggling to find major global banks
to help it sell $3 billion worth of sovereign bonds, putting into
question Moscow's return to capital markets after a near three-year
absence.
Many European banks have ruled themselves out of participating
in a bond sale, unwilling to upset U.S. and European authorities,
who have imposed sanctions on a range of Russian companies and
individuals. The U.S. government has already warned off some top
U.S. banks.
That leaves Russia mainly reliant on local and Chinese banks to
get the deal done. But these banks may not have the international
reach to sell Moscow's first foreign deal since sanctions were
imposed following Russia's annexation of Crimea in 2014. Russian
officials have said that European banks are crucial for the
sale.
The sanctions don't explicitly prohibit banks from handling bond
sales for the Russian government or investors from buying these
securities. But the U.S. and the EU are concerned that Moscow could
funnel money raised to sanctioned companies, and they have let
banks know that, people familiar with the matter said.
Some investors are also wary of buying a potential bond deal for
the same reason.
"Nobody wants to do something that could be seen to be outside
the spirit of the sanctions," said Paul McNamara, a fund manager at
GAM Holding AG.
Russia invited banks from the U.S., Europe and China to pitch
for the potential $3 billion bond deal.
The EU has not banned banks from participating in the deal, but
it has told bankers to ensure the proceeds of any deal don't end up
in the hands of sanctioned companies, according to people familiar
with the matter.
"Any bank would need to be mindful and exercise due diligence"
to guard against this, an EU official said in a statement.
European banks are also concerned about angering the U.S., which
in recent years has levied billions of dollars of fines against
European lenders, including BNP Paribas SA and HSBC Holdings PLC,
for breaching sanctions.
BNP Paribas, Credit Suisse Group AG, Deutsche Bank AG, HSBC and
UBS Group AG have decided not to underwrite Russia's bonds,
according to people familiar with the matter.
U.S. lenders Bank of America Corp., Citigroup Inc., Goldman
Sachs Group Inc., J.P. Morgan Chase & Co., Morgan Stanley and
Wells Fargo & Co. are also steering clear, according to people
familiar with the matter.
Some European lenders haven't ruled out doing the deal,
including Italy's UniCredit SpA and France's Socié té Gé né rale
SA, according to people familiar with the matter. Socié té Gé né
rale, which owns Rosbank, one of Russia' major privately owned
banks, declined to comment.
Svetlana Nikitina, an adviser to Russian Finance Minister Anton
Siluanov, said earlier this month that around half of the 28 banks
it asked to pitch for the deal have responded to the offer.
The banks in talks with Russia are asking that the bond not be
denominated in dollars, one Moscow-based banker close to the deal
said. That could crimp the total amount of money Moscow could
raise, investors say.
If the bond is denominated in dollars then its settlement will
have to go through the U.S., which could present problems for banks
working on the deal, this person said.
A final decision on which banks will be hired is expected by the
end of this week or as early as next week, according to a Russian
government official.
As well as Russian banks, Chinese banks will be among the main
organizers of the deal, but Moscow would still like Europeans to
take part in the deal, the government official and the Moscow-based
banker said.
Chinese banks are beefing up overseas in a reflection of the
country's bigger international clout, but have yet to make major
inroads into European and U.S. capital markets.
But one of China's four largest state-run banks declined to
pitch out of concern it didn't have sufficient distribution
capabilities in Europe to handle the sale and wasn't sure such a
deal would pass muster in Beijing, according to a Europe-based
banker at the firm in question.
For investors, one potential concern is that it might be hard to
sell the bonds on the secondary market without major trading houses
standing ready to match buyers and sellers of these securities.
Still, some potential buyers aren't deterred by sanctions.
"We're free to do whatever we want. The Russian Federation is
not a sanctioned entity," said Edwin Gutierrez, head of
emerging-market sovereign debt at Aberdeen Asset Management.
That said, even if buying Russian bonds is possible, it's not
necessarily an easy sell. Mr. Gutierrez says he doesn't see much
value in Russian bonds following a sharp rally last year.
Russia's real gross domestic product fell 3.7% in 2015 and is
expected to drop further this year. Facing shortfalls in the
budget, the finance ministry has cut spending and is now seeking to
borrow abroad.
"The real economy is still going to be in recession this year.
It's going to be a very tough environment," said Yerlan Syzdykov,
head of emerging-market bonds at Pioneer Investments.
James T. Areddy also contributed to this article.
Write to Christopher Whittall at christopher.whittall@wsj.com
and Andrey Ostroukh at andrey.ostroukh@wsj.com
(END) Dow Jones Newswires
March 23, 2016 12:55 ET (16:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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