Kazakhstan, Ukraine to increase foreign borrowing in 2011 - VTB Capital
2010-12-21 12:42:36
Kazakhstan and Ukraine will step up borrowing abroad in 2011, said Andrei Solovyev, the global head of capital debt markets at VTB Capital, the investment banking arm of the VTB (RTS: VTBR) group.
"The market will grow. We expect growth in borrowing from Russia, but we expect most of the increase to come from Ukraine and Kazakhstan," Solovyev told journalists in London, adding that he had in mind both public and corporate borrowing.
Issuers might place securities denominated in dollars and in rubles.
"With the onset of political stability in Ukraine, investor sentiment has improved, while Kazakhstan has bottomed out and is now heading up," he said.
Borrowers from other CIS countries may appear on the market next year, he said.
Commenting on Russian borrowing trends in 2010, Solovyev said the market had grow substantially compared with 2009. VTB Capital alone was involved in borrowing totaling $15 billion this year, up from $3.5 billion in all of 2009.
"Russia is becoming more and more important on capital borrowing markets. Many investors view Russia as a country with strong fundamentals, as a most reliable borrower," he said, adding that Russian borrowers account for a growing percentage of overall market volume.
The volume of individual transactions is also increasing compared with pre-crisis years: many transactions this year exceed $500 million, which was fairly rare before 2008. Investors are paying more attention to an instrument's liquidity and whether it constitutes a benchmark transaction: at least $500 million.
In addition, many Russian banks with low ratings, which used to borrow at high interest rates, have left the market.
"Investors who got burned in 2008 prefer calculable risks, best of all sovereign debt or debt with investment-grade ratings, at least "BB," he said.
"Before 2008, Asian investors looked at the coupon - the higher the better, and preferably double-digits. They were pretty naive. Now we are seeing a totally different situation. In transactions on Russia, VTB, Russian Railways (RZD) (RTS: RZHD), there have been large numbers of Asian investors, despite the low rates. The risk valuation has become more important for them than coupon income," he said.
Meanwhile, Russian investors have been more active in Eurobond placements by Russian issuers.
"Of course, they took part in years past, but not in these volumes. We are seeing their bids amount to 20%-25% of the total. This is very important, because Western investors know that their Russian colleagues have a better sense of the credit risks, and that is a litmus test: if there are Russian bid in the book, then foreigners are more willing to buy the security," he said.
New borrowing instruments, such as euro commercial paper - short-term paper for terms of up to one year - are appearing on the market. Alrosa (RTS: ALRS) borrowed $650 million last year and $300 million this year. Ruble-denominated Eurobonds are another new instrument: Rosselkhozbank (RTS: RSHB) and RusHydro (RTS: HYDR) have issued them.
"We believe this trend will strengthen. Russia itself and a host of other borrowers are looking at the possibility of placing ruble Eurobonds," he said.
Finally, a number of Russian borrowers could issue yuan-denominated obligations next year, Solovyev said.