Russian Bank $2.5 Billion Bond Sales Most Since 2008 (Update1)

Russian companies, led by OAO Sberbank and Vnesheconombank, are borrowing as much as $2.5 billion in the international bond market for the first time in two years. The sales reflect growing confidence in the economy, as growth accelerates in the second half of the year.

“The overall story in Russia is that loan books are growing quicker than maybe expected,” said Robert Whichello, co-head of the global syndicate business in London at BNP Paribas SA, France’s biggest bank. “We’ve got a period of relative calm and issuers are looking to take advantage of that.”

Sberbank, Russia’s biggest lender with about $248 billion of assets, sold $1 billion of five-year debt yesterday. Vnesheconombank, the government’s development bank, plans to issue the same amount in 10-year notes, according to a banker with knowledge of the transaction. OAO TransCreditBank, the lending unit of Russia’s rail monopoly, may sell up to $500 million of five-year debt, the company’s president said. The total is the most for a week since June 2008, according to data compiled by Bloomberg.

Banks are taking advantage of yields near one-month lows to revive corporate sales from Russia, where the government returned to international markets in April for the first time since defaulting on $40 billion of debt in 1998. Rising bank deposits and credit are fueling an economic expansion that Goldman Sachs Group Inc. says may reach 7 percent this year after the gross domestic product contracted in 2009 by the most since the Soviet Union’s 1991 collapse.

Yields Fall

Emerging nations including Russia may lure investors who want to shift away from holdings in indebted European countries, Whichello said. Greece, Portugal and Spain had their credit ratings downgraded this year on concern they will struggle to fund their budget deficits.

Yields on Russian corporate bonds dropped to 6.73 percent yesterday from this year’s high of 7.35 percent on May 25, according to JPMorgan Chase & Co.’s Corporate EMBI Russia Index.

Sberbank’s 5.499 percent notes were priced to yield 369 basis points, or 3.69 percentage points, more than similar- maturity U.S. Treasuries, Bloomberg data show.

Russia’s economy expanded 2.9 percent in the first quarter from a year earlier. President Dmitry Medvedev said at the annual St. Petersburg International Economic Forum last month that the economy is recovering with “minimal” sovereign debt, growing foreign exchange reserves and slowing inflation.

Default Swaps

Credit-default swaps linked to Russian debt fell 2 basis points to 196 yesterday. The five-year contracts that investors use to hedge against losses on corporate debt or speculate on creditworthiness pay the buyer face value if a borrower reneges on its debt.

The extra yield investors demand to hold Russian sovereign debt rather than U.S. Treasuries dropped one basis point to 282 at 10:19 a.m. in London, according to the JPMorgan EMBI+ Index. The yield on Russia’s dollar bonds due in 2020 rose one basis point to 5.47 percent.

The ruble weakened less than 0.1 percent against the dollar to 31.260, after dropping 1.2 percent last month. Investors increased bets that the ruble will weaken further, with non- deliverable forwards showing the currency at 31.4662 per dollar in three months compared with an NDF of 31.4270 yesterday. The contracts are a guide to expectations of currency movements as they allow foreign investors and companies to fix the exchange rate at a particular level in the future.

New Benchmark

Russian companies issued about $1.5 billion of international bonds in the two months after the government’s $5.5 billion debt sale in April that Finance Minister Alexei Kudrin said would help create a new benchmark 12 years after the government’s default. Company debt sales were limited by concern Europe’s debt crisis will worsen and erode demand for riskier assets.

A spokesman for Moscow-based Sberbank couldn’t be reached, a Vnesheconombank official in Moscow wasn’t unavailable and a TransCreditBank spokesman in Moscow also couldn’t be reached for comment after office hours.

Barclays Capital, Citigroup Inc., HSBC Holdings Plc and Societe Generale SA are managing Vnesheconombank’s sale of loan participation notes, according to a banker involved in the transaction. Sberbank hired DZ Bank AG, JPMorgan and Royal Bank of Scotland Group Plc for its sale, two people with knowledge of the transaction said.