GAZPROM SELLS €1 BLN
Russian energy giant OAO Gazprom became the latest emerging-market borrower to sell debt to international investors, taking advantage of growing expectations that the U.S. Federal Reserve will delay raising interest rates.
Gazprom will pay an interest rate of 4.625% on a €1 billion ($1.12 billion), three-year bond, according to a deal notice released Thursday. Gazprom didn't respond to requests for comment.
The planned offering follows several bond deals from emerging-market governments and companies this week.
On Wednesday, Turkcell Iletisim Hizmetleri AS, Turkey's biggest mobile-phone operator, sold a 10-year, $500 million bond at an interest rate of 5.75%; Ghana issued a 15-year, $1 billion bond at an interest rate of 10.75%; and Poland sold a six-year, €1.75 billion bond at an interest rate of 0.875%.
"These trades have really been driven by the benign interest-rate outlook in the U.S. after [last] Friday's weak payroll numbers. That's stimulated risk appetite, which has benefited emerging-market borrowers," said Stefan Weiler, a managing director at J.P. Morgan Chase & Co.
Many economists believe emerging-market countries are vulnerable to a rise in U.S. interest rates and a stronger dollar. Low interest rates in the U.S. over the past several years encouraged some investors to buy higher-yielding emerging-market assets.
Since the U.S. jobs report, the extra yield investors demand to hold dollar-denominated emerging-market sovereign debt has narrowed to 4.10 percentage points on Wednesday, the latest data available, according to the J.P. Morgan Emerging-Market Bond Index, from 4.37 percentage points. Yields fall when prices rise.
Russian borrowers are taking advantage of the rally in emerging-market debt to return to international bond markets after a lengthy absence. Mining firm Norilsk Nickel broke a nine-month, dollar-bond freeze for Russian companies when it issued a $1 billion bond on Tuesday at an interest rate of 6.625%.
The average yield on Russian corporate and quasi-sovereign corporate debt denominated in U.S. dollars rose to more than 13% last December after a slide in oil prices, an escalation of the conflict in Ukraine and the imposition of U.S. and European sanctions against various Russian firms and individuals. The average yield is now 6.3%, according to Barclays, following a perceived easing of tensions in Ukraine.
International investors have again become comfortable with holding Russian corporate bonds, which have performed strongly this year, said Patrick Zweifel, chief economist at Pictet Asset Management.
"As long as things haven't deteriorated in terms of sanctions, we've reached a sort of a 'new normal' that investors are pretty happy with," he said, adding that the interest payments demanded by investors are high enough to compensate for the political risk associated with holding this debt.
"Investors' perception of Russian risk has evolved over time," said Eric Cherpion, a managing director at Société Générale, which was one of several banks managing the recent Norilsk Nickel deal.
"We got very strong investor feedback when we were on the road with Norilsk; they considered the situation in Russia has stabilized," he added.
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