EBRD launches new five-year domestic rouble bond

By Richard Wallis

The European Bank for Reconstruction and Development has returned to the Russian capital market with the launch of its fourth rouble bond issue, underscoring its commitment to the development of the domestic capital market and supporting its strategy of local currency lending in Russia.

The five-year 5 billion rouble Floating Rate Note (FRN) is linked to MosPrime, the Russian money market reference rate created in 2005.

The initial coupon was set today at 15.7 percent. At 25 basis points below MosPrime, this is the first FRN to have a coupon set below the index rate. The bond attracted a total demand of 8.4 billion roubles.

The EBRD, which supported the development of the MosPrime index, has now raised a total of 32.5 billion roubles on both the domestic and international rouble bond markets in order to support lending in the local currency for Russian projects.

The Bank was the first International Financial Institution to issue rouble bonds in the domestic market when it launched its inaugural bond in May 2005. Two more issues followed in 2006. The EBRD is the only international triple-A rated institution whose domestic rouble bonds are traded on the Russian market.

“This latest issue of domestic rouble bonds shows the EBRD is determined to help deepen and strengthen the domestic Russian capital market,” said EBRD Vice President Finance Manfred Schepers.

“Domestic currency lending is a key priority of the EBRD, especially to borrowers whose revenues are in rouble. The importance of being able to borrow in the local currency and avoid foreign currency risk has become self evident at a time when many currencies in the EBRD region have depreciated during the financial crisis,” he added.

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 ZAO Unicredit Bank, Goldman Sachs OOO, BANK WESTLB Vostok ZAO, KMB BANK (Closed joint-stock company), Deutsche Bank (Limited Liability Company).

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 February 2009, the EBRD had provided MosPrime-linked local currency loans totalling 85 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 therefore seek to avoid foreign currency exposure.

The MosPrime rate has risen sharply since the global liquidity crisis hit Russia last September but has started to fall again earlier this year as the rouble stabilised, although levels still remain much steeper than before the onset of the crisis.

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

The EBRD also supports its rouble lending programme by borrowing in the euro rouble bond market. It raised a total of 10 billion roubles in the international markets through two fixed rate bond issues in 2007 and 2008. These were placed predominantly with continental European and Asian investors.

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

Just 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.

The coupon rate for the bond will be published on Reuters page EBRDRUBFRNRATE5.