July 2 (Bloomberg) -- Russian companies shut out of the international debt markets are selling more ruble bonds than dollar notes for the first time since 2006 as the domestic currency recovers from its 35 percent devaluation.
OAO Russian Railways, the railroad monopoly, and X5 Retail Group NV, the largest food-store operator, led 261.6 billion rubles ($8.4 billion) of bond sales this year, according to data compiled by Bloomberg. That’s more than double the combined value of the two dollar issues, by state-owned gas exporter OAO Gazprom and farming lender Russian Agricultural Bank.
“Domestic debt looks attractive for investors assuming the ruble remains stable,” said
Luis Costa, an emerging markets debt analyst at Commerzbank AG in London. “In the dollar bond market we’re now back to a blue-chip game, while ruble issuance is accessible to a much wider group of companies.”
With international banks and insurers struggling under $1.5 trillion of losses, dollar bonds are all but off limits for companies in Russia, whose economy shrank an annual 9.8 percent in the first quarter, the most in 15 years. The ruble rallied 17 percent against the dollar since the government devalued the currency between August last year and January, making domestic bonds a safer purchase for Russian banks.
Stronger Ruble
The ruble strengthened to 30.47 per dollar on June 3, the highest this year, from as low as 36.56 on Feb. 18. Russia weakened its currency between August and January to protect exporters after oil, their No. 1 product, tumbled. Crude fell to as low as $32.40 a barrel on Dec. 19, before recovering to as high as $71.85 yesterday.
The rebound in the ruble has “added some degree of allure” to the domestic bond market, said Costa.
Demand for ruble bonds is also helped because Russian lenders are able to pledge the notes as collateral for loans from the central bank, helping create demand for the securities even as the nation remains more badly affected by the global credit crisis than most of its European neighbors.
Without the central bank’s refinancing program, even “selling bonds locally would’ve been difficult,” said
Mikhail Galkin, a fixed-income analyst at MDM Bank in Moscow.
Prices of ruble-denominated bonds have risen as the currency stabilized. The notes climbed 7.2 percent this year, after tumbling 19 percent in 2008, according to the
Micex Corporate Bond Index. The index advanced to 87.20 on June 25, the highest level since Oct. 20, a month after the collapse of
Lehman Brothers Holdings Inc. in the U.S. roiled debt markets worldwide.
Russian companies have about 1.6 trillion rubles of domestic-currency bonds outstanding, according to data compiled by Bloomberg.
Higher Interest
Even as investors are willing to buy ruble bonds, rising demand for funds is driving up interest costs, said
Maxim Tishin, a money manager at UFG Asset Management in Moscow, which oversees more than $300 million of debt.
“Ample supply” is causing even state-owned borrowers to pay more, according to Tishin, who said he’s “expecting even more supply from blue chip companies.”
Russian Railways, the Moscow-based operator of the world’s longest rail network, paid 14.25 percent for its 15 billion rubles of bonds issued o
