Russia: The importance of local currency financing

A popular EBRD rouble bond shows the need for local currency financing.

As part of the EBRD’s crisis response strategy the Bank launched in June 2009 its latest rouble bond worth Rb 3 billion. It has a five-year maturity. The bond shows how important the EBRD considers local currency financing to be.

An attractive investment

The EBRD issues bonds to investors who pay for them in roubles. The advantage of bonds to investors is that they offer security, particularly when they are issued by a very stable, triple-A rated institution such as the EBRD.

The Central Bank of Russia also accepts the EBRD’s bonds for repurchasing agreements, which allows banks to use them to obtain cash funding. This is especially important for the bonds’ appeal and performance because in the Russian domestic market the investor base is predominantly made up of financial institutions, rather than the insurance companies, asset managers and pension funds that constitute a major part of the international investor base.

Avoiding risk

The EBRD uses the roubles it raises from these bond issues to lend to clients whose projects produce a rouble income stream, thereby sheltering them from potential fluctuations in the currency markets. For example, if a company finances its activities by borrowing in dollars but earns revenue in roubles, it may struggle to repay its dollar-denominated debt should there be a significant devaluation in the rouble.

Strong demand

This latest bond was nearly three times oversubscribed, which shows there is a healthy appetite among foreign and domestic banks for investment in rouble bonds.

The fact that the EBRD’s bond has a five-year maturity boosted confidence in the rouble market – during the financial crisis there has been a reversal in the trend of the last few years of lengthening maturities.