EBRD launches five-year 3 billion rouble bond

By Richard Wallis

The European Bank for Reconstruction and Development today launched a five-year 3 billion rouble bond, returning to the domestic market for the second time this year to raise funds for its local currency lending programme in Russia which has by now reached 86 billion roubles.

The issue, which was priced below the MosPrime benchmark, attracted 11 bids totalling 8.2 billion roubles. The Floating Rate Note (FRN), the Bank’s fifth rouble issue on the domestic market, is linked to MosPrime, the Russian money market reference rate created with the EBRD’s support in 2005 at the time of its inaugural rouble bond launch.

The initial coupon on the new bond was set today at 11.48 percent, 55 basis points below MosPrime. This makes it only the second rouble bond to have a coupon set below the index rate.

The five-year Floating Rate Note is underwritten by a syndicate of international and Russian banks. ZAO Citibank, ING Bank (Eurasia) ZAO (Closed Joint Stock Company) and ZAO Raiffeisenbank are the official joint lead managers of the new issue. In addition, other banks in syndicate are Goldman Sachs OOO, BANK WESTLB Vostok ZAO, BNP Paribas ZAO, Credit Europe Bank Ltd and KMB BANK ZAO.

The bond launch underlines the Bank’s commitment to deepening and strengthening the domestic Russian capital market. It brings to 44.9 billion roubles the rouble funding raised so far by the EBRD on both domestic and international rouble bond markets.

This includes 19.4 billion roubles raised through seven fixed rate issues on the rouble euro bond market since 2007. These bonds were placed predominantly with continental European and Asian investors.

The money is being raised in order to finance the EBRD’s existing rouble loan portfolio and provide funding to support long-term rouble lending activities. As of the end of May 2009, the EBRD had provided MosPrime-linked local currency loans totalling 86 billion roubles to corporate, financial and municipal clients in Russia.

The EBRD’s rouble lending programme mainly targets clients who do not have access to export revenues and are therefore keen to avoid foreign currency exposure.
The Bank became the first International Financial Institution to issue rouble bonds in the domestic market when it launched its first such bond in May 2005. Two more issues followed in 2006 and this is the second issue in 2009. The EBRD is the only international triple-A rated institution whose domestic rouble bonds are traded on the Russian market.

MosPrime is calculated daily for overnight, 1-week, two-week, 1-month, 2-month, 3-month and 6-month deposits based on pricing quotes contributed by 10 banks: Bank of Moscow, ZAO Citibank, Gazprombank, HSBC, Raiffeisenbank, Royal Bank of Scotland, Sberbank, Unicredit, VTB and West LB Vostok.

MosPrime is used in the Russian financial market as the reference rate for the pricing of floating rate loans and interest rate swaps.

The decision to issue a new EBRD bond was registered with the Federal Financial Markets Service (FFMS) on 24 March 2009.

As with its previous domestic rouble bonds, the EBRD will apply for this issue to be listed and traded on the Moscow Interbank Currency Exchange (MICEX) and for the Central Bank of Russia to include it in its Lombard List. This would qualify it for use in repo transactions with the Central Bank.

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The EBRD, owned by 61 countries and two intergovernmental institutions, is supporting the development of market economies and democracies in countries from central Europe to central Asia.