Page 99 - IFR Opportunities in Russian capital markets

CHAPTER04
ifrintelligence reports/Opportunities in: Russian Capital Markets
Bank borrowing of Eurobonds
Banks have been among the most active issuers of bonds as they raise capital to channel into the growing loan portfolio. Many of the biggest banks have been turning to the international capital markets, where the resources have longer maturities at lower prices than is available on the domestic market. Banks borrowed US$25bn of Eurobonds and CLNs in 2006 – a record. A breakdown of Eurobond and CLN distribution is given in Figure 4.21.
The state banks dominate the banking sector and have the most resources available. The government has regularly called on the leading state-owned banks to support politically motivated projects with credits.
Figure 4.21: Eurobond and CLN distribution, by type, Nov 2006 (%)
Source: Troika Dialog
5% 3% 2%
4%
42%
44%
Corporate Eurobonds Banking Eurobonds ABSs
Banking CLNs Corporate CLNs Ruble Eurobonds
In Russia, the maximum credit exposure allowed by law to one borrower is 25% of the bank's equity. While the CBR could theoretically waive breaches of this regulation (and has done so in the past), such a waiver would be politically difficult to maintain for long, as it would lead to disputes centred on the Eurobond covenants of the leading state-owned banks' Eurobonds.
Given the equity of the largest 10 state-owned banks, they could lend up to US$2.5bn to one borrower, based on aggregate Russian Accounting Standards equity as of the end of the first half of 2006 (see Table 4.3).
While the amount of short-term funding that Russian state-owned banks can attract is virtually unlimited, the sources of long-term funding are restricted to selling liquid assets and borrowing from international banks and on international capital markets. Renaissance Capital estimates the maximum that state banks can borrow is US$3–4bn within a timeframe of two to three months.
Table 4.3: State-owned banks – lending capacity, 1H2006 (US$m)
Equity
1H06, RAS, US$m Maximum exposure to one borrower
*VEB - FY05 IA5 data. VEB has a special legal status, does not possess a banking licence, and is thus not subject to CBR regulations. We make an assumption, however, that it would not lend substantially more than 25% of its 1A5 equity to one borrower.
Source: Bank data, Renaissance Capital estimates
VTB 2,811 703 VTB-Retail 505 126 Sberbank 1,129 282 Gazprombank 2,115 529 Evrofinance-Mosnarbank 243 61 Bank of Moscow 1,103 276 Russian Development Bank 229 57 Rosselkhozbank 568 142 Promstroibank 640 160 VEB* 826 207 Aggregate 10,171 2,543
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