Asian investors sought for Russian bonds

Against the backdrop of Western sanctions, the Central Bank of Russia is aiming to attract investors from Asia and the Middle East to buy Russian Federal Loan Obligations (OFZs) and corporate debt in roubles, according to a report in Vedomosti.  “Now, that we have certain difficulties in accessing long-term financing markets, we are undergoing a change of priorities with the aim in view of diversifying investors in Russian debt securities,” the Director of the Central Bank's Department of Financial Stability Sergei Moiseyev told the paper.

Western markets are closed for the time being to state-owned banks, Gazprombank, Rosneft, and the largest private natural gas company Novatek. In the next round of sanctions that the EU is preparing to introduce, European investors may be blocked from buying new OFZs. In these circumstances, the Central Bank, according to Moiseyev, intends to work with key players to promote Russian securities on Asian markets.

The kinds of investors expected

To start, the Central Bank wants to promote the debt securities in key Asian centres - Singapore, Hong Kong, Shanghai, and Tokyo - where the main pools of liquidity of sovereign funds and funds specializing in developing markets have accumulated. “If this experience is successful, then the second largest centre of accumulation for such resources is Islamic finance, the sovereign funds of the Arab world - Saudi Arabia and Qatar. This means a change in the composition of investors in Russia,” said Moiseyev.

According to data from the Central Bank, in July 2014 non-residents had 25.6 percent of the OFZs (945 billion roubles according to face value or $25 billion). In addition, foreigners prefer OFZs at a maturity of 5-7 years (more than 40 percent) while the major domestic investors – banks – held 70 percent in short-term bonds (maturing in a year). 

According to Investcafe analyst Timur Nigmatulin, the Central Bank’s initiative will most likely be successful. Russian debt securities, primarily long-term ones, will be of interest to Asian investors. “However, despite the fact that the Asian market is less dependent on American pressure, the rate on Russian bonds are likely to be higher than they were half a year ago,” noted Nigmatulin. According to the expert, taking into account the needs for capital of the region itself, the volume of investments from Asian funds will be in the range of $10 billion to $20 billion.

The potential for investments from Asian institutional investors in OFZs can reach tens of billions of dollars, estimates Dmitry Dudkin, an analyst at URALSIB Capital.

“The Asian and Arab sovereign funds have immense available reserves and their country diversification is of interest there,” says Kira Yukhtenko, an analyst at the brokerage firm FBS. In recent years, China and Japan have actively invested in the Eurozone. However, the announcement in early September about the easing of European Central Bank policy has pushed down the yield of Eurobonds. Meanwhile, the yield of Russian bonds is now high, and this is the main competitive advantage for Russian securities,” Yukhtenko says.

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