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Opinion
April 20, 2018 www.intellinews.com I Page 25
to enter the market with new Eurobonds issues.
The issue was released in two tranches: in the form of a new Eurobond issue worth $1.5bn maturing in 2029 and a tap issue for Russia 2047 worth $2.5bn. In spite of the market volatility, new issues were met with high demand and the or- der book was twice over-subscribed. In total, the demand for two tranches amounted to $7.5bn, and institutional investors from the UK and the US were the main investors.
But despite the strong demand the issue cannot be called a success as it was bought at the cost of offering investors large premiums.
The initial target yield for the Russia 2029 bond was 4.75%, and for the tap issue Russia 2047 it was 5.5%. After pricing, the bonds were issued at 4.625% and 5.25% respectively. And as the politi- cal tensions continue to rise so will the yields on Russia’s sovereign debt.
By April similar risks of sanctioning Russia’s debt appeared in the US, and new sanctions were imposed on big Russian companies, with major
aluminium producer Rusal singled out. Rusal’s Eurobonds have been badly affected by the harsh new sanctions and lost a lot of their value. These events discourage major investors from any long- term investments into Russian debt and Russian corporate borrowers due to the new levels of un- certainty that prevail in the market. The rationale for singling out some companies and people on the last sanctions list is not clear, raising the pos- sibility that any company could be targeted next, thus increasing the risk for all Russian assets.
Taken all together the heightened political risks associated with Russian debt and the rising US T-bill yields presents a serious challenge to the international Eurobond markets.
A large volume of repayments due over the next few years will drive up the premiums issuers will need to offer if they want to refinance, and force issuers to enter the market with new issues in order to refinance the current debt. At the same time, the outflow of capital from emerging mar- kets will inevitably lead to an increase in yields and premiums for new issues and could lead to increasing difficulties in servicing existing debt.
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