The news in early May that Gazprom and Sberbank were visiting bond buyers in Asia sparked a flurry of comment in the west.
Bankers and journalists alike leapt to the conclusion that the two state-owned firms, along with a clutch of other Russian borrowers rumoured to be interested in issuing in the region, were hoping to find in Singapore and China replacements for the western investors that have shunned Russian names since the first round of US and European sanctions in mid-March.
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| Source: Gazprom |
Having made this assumption, the same pundits helpfully explained why such hopes were doomed to disappointment. They noted the shortage of liquidity in Asian markets, the limited track record of most Russian issuers in the region, and the likely lack of enthusiasm of local bond buyers for firms that might be added to western blacklists at any minute. All these points are, of course, valid.
Compared with the vast pools of liquidity controlled by US and European fund managers, the purchasing power of fixed-income investors in Asia is severely limited. Regional demand typically accounts for just a few percentage points of the multi-billion-dollar transactions that have historically been Russian borrowers’ preferred international funding instruments, while total sales of offshore renminbi and Singapore dollar bonds last year amounted to less than half the $52.7 billion issued by Russian firms in global markets.
Russian names are also relatively little known in Asia, particularly among local-currency investors. Total Russian issuance in the dim sum market to date amounts to just eight deals from four banks for a value of $1.1 billion, while only two borrowers from the country – VTB and Bank of Moscow – have ever tapped the Singapore dollar market.
It is also undeniably true that Russian firms will struggle to gain traction in Asian bond markets while the turmoil in Ukraine continues. Asian investors might be less concerned about the geopolitical risks associated with the destabilization of eastern Europe than their counterparts in the US, but they will be equally alive to the dangers of a sell-off in Russian assets due to any expansion of western sanctions.
To suggest, however, that funding officials at Russia’s largest companies are somehow unaware of a situation that is obvious to the rest of the financial markets is simply ludicrous.
It is also unnecessary, given that there are clearly excellent reasons for Russian borrowers to be visiting Asia at present. From a funding perspective, the removal of an important source of liquidity is always a timely reminder of the value of diversification. Similarly, it makes sense to gain a foothold in markets that are set to increase in both size and significance in future.
But, for precisely the reasons advanced by western commentators, finding new funding is unlikely to have been the main driver of these Asian excursions. It is surely no coincidence that the two main names to emerge in this connection have been Gazprom and Sberbank, both firms with particularly close ties to the Russian government.
As such, these very public demonstrations of engagement with Asian bond investors should almost certainly be seen in the same light as president Vladimir Putin’s much-touted gas deal with China. In both cases, the financial returns to Russia are likely to be limited. Their value, however, lies in demonstrating to international and, possibly more importantly, domestic audiences that Russia can find alternative markets for both its gas and its bonds.
Western commentators should perhaps remember that it is usually a mistake to assume that Russians are stupid.