Bloomberg News

Russia to Start Euroclear Trade of Corporate Bonds

July 30, 2012

Russia will allow Euroclear Bank SA and Clearstream International SA direct access to domestic corporate debt when a central depositary begins working in about two months, Finance Minister Anton Siluanov said.

“The first stage is to allow Euroclear and Clearstream into our domestic market for bonds, whether they’re state or private,” Siluanov told reporters in Moscow today. Transactions can begin “as soon as the depositary starts working,” he said.

The world’s largest energy exporter is seeking to lower its borrowing costs by allowing foreign investors direct access to debt auctions. Holdings of the Russian sovereign ruble bonds known as OFZs by non-residents may rise to 30 percent of the 3.1 trillion-ruble ($97 billion) total from about 6 percent now, once Euroclear, which runs the largest bond-settlement system, and Clearstream gain access, according to VTB Capital.

“We’re expecting positive implications,” Siluanov said. “It’s important for us that there was greater access and greater possibilities for foreign investors to buy our state bonds without all of the associated obstacles.”

‘More Convenient’

Wider access for investors will most benefit the ruble- denominated notes of state-backed companies including OAO Gazprom (GAZP), OAO Russian Railways and Federal Grid Co., according to Roman Dmitriev, who oversees about $150 million in Russian bonds at OOO Spectr Invest in Moscow. The yield on the rail monopoly’s 15 billion rubles of bonds due March 2014 dropped 18 basis points to 7.6 percent, the lowest on a closing basis since May 12.

“Some guys probably will prefer to hold a position in the corporate debt of state companies, as most reliable state issuers offer higher yields than OFZs,” Dmitriev said by e- mail.

The yield on the Russian Railways notes is 76 basis points higher than similar-maturity government ruble bonds, according to data compiled by Bloomberg.

Siluanov last month said talks were continuing on the timing for granting Euroclear and Clearstream access to the corporate debt market. Martin Gregson, a Brussels-based spokesman for Euroclear, said earlier today that the company hadn’t been given any new guidance on the timing for access to companies’ ruble bonds.

Lagging Behind

Russian ruble bonds have returned 6.4 percent so far this year, compared with a 16.3 percent gain for local Brazilian debt, according to JPMorgan Chase & Co. (JPM:US) EMBIG indexes. Russia plans to sell another 850 billion to 900 billion rubles of debt this year to reach the planned target of 1.3 trillion rubles in gross sales, Siluanov said.

Russian companies sold a record 924.3 billion rubles in bonds on the domestic market last year, the central bank said in a report in May. The amount of corporate bonds on the market rose 16 percent in the year to 3.4 trillion rubles, the regulator said in an annual report on the banking sector.

Plans to open Russia’s securities market fully to international clearing systems stalled after objections from local competitors worried about losing business to global platforms.

“We think it shouldn’t be a question of competitive advantages,” Siluanov said. “If we want to talk about competition on the market, then it should be clear, transparent and most important -- it should be more convenient for the investor.”

Allowing foreign depositaries like Euroclear access to the domestic debt market may lead to investors outside Russia increasing their holdings to about 40 percent of the government ruble bond market “over the years,” Philippe Laurensy, Euroclear’s head of sales for central and northern Europe in Brussels, said in a June 29 phone interview. The company expects to start processing OFZ trades as early as September, Laurensy said at the time.

To contact the reporters on this story: Scott Rose in Moscow at rrose10@bloomberg.net; Jack Jordan in Moscow at jjordan22@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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