12:18 Apr. 13, 2016
Ruble swap rates drop to lowest level since October 2014
Even as the Eurobond market reopened to some Russian borrowers this week, others are cultivating survival strategies that mean they can raise money in dollars more cheaply at home as a third year of sanctions bars the nation's biggest companies from foreign capital.
Using derivatives to turn ruble bonds into dollar funds results in a yield 1.5 percentage point less than what an issuer would expect to pay for a Eurobond, according to prevailing basis-swap rates.
That was enough to persuade Andrey Ilyin, the chief financial officer of EuroChem Group AG, to put off a Eurobond sale this month in favor of a 15 billion ruble bond (8 million).
"Russian entities will continue to use swaps as a funding vehicle as long as economic terms are better than tapping the Eurobond markets," said Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG.
"The sanctions have created idiosyncratic risks" that the central bank has addressed by bolstering local lenders with a surfeit of dollars, he said.
Russian banks are sitting on the most cash in five years, allowing them to lend to each other at a lower rate than they borrow from the central bank, after the finance ministry drew on sovereign wealth funds to cover a fiscal gap.
The overnight money-market rate known as Ruonia trades at 10.9 percent compared with the central bank key rate of 11 percent. That's helped drive down currency swap rates to 8.05 percent from as high as 9.895 percent on Jan. 21.