MOSCOW Russian lender VTB's (VTBR.MM) investment banking business VTB Capital expects an increase in corporate Eurobond issues from Russia next year as growing confidence in the economy spurs corporate investment programs.
The combination of Western sanctions imposed in 2014 over the Ukraine crisis and a protracted downturn in oil prices sent Russia into recession, but the economy is forecast to strengthen this year to a contraction of between 0.5 percent and 0.6 percent, compared with a 3.7 decline in 2015.
That improvement could sway businesses to switch focus from debt reduction to capital expenditure, said VTB Capital's head of debt capital markets (DCM) Andrey Solovyov, adding that corporate borrowers raised about $4.5 billion in Eurobonds last year and $6.5 billion so far this year.
"I am sure that there will be more, significantly more (deals)," Solovyov told the Reuters Russia Investment Summit. "Russians now think that the rouble has become more or less stable -- everyone was afraid to borrow as no one knew there the rouble would end up."
Solovyov said that companies with export revenue in hard currency such as U.S. dollars should feel "pretty comfortable" tapping Eurobond markets.
"Potential seems high for real sectors of economy and resource-oriented (companies) as foreign investors want exactly this," Solovyov said, naming the transport, infrastructure, chemicals and commodities sectors.
"It is hard to say for all, but there may be some who are looking (to raise debt) for investment programmes as well."
Solovyov's views chime with those of U.S. bank Citi (C.N). The bank's Russia boss said this week that it expects a pick-up in Russian business this year, citing increasing M&A activity and corporate debt issuance.
Lack of corporate investment over the past two years created a mismatch between demand and supply in Russian Eurobond issues, which had totaled more than $50 billion a year in 2012 and 2013.
Solovyov said that Russian companies redeemed about $19 billion in Eurobonds in 2015 and will pay off $16 billion this year.
"International investors see that Russians are paying off their debts and there is less debt available (on the market) ... Demand and supply are working in favor of Russian names," he said, adding that even companies previously unknown to international markets are now in a position to seek deals.
In July Russian State Transport Leasing Company raised a $500 million debut Eurobond with a five-year term and attracted orders exceeding $2 billion, allowing for a lower yield.
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(Additional reporting by Lidia Kelly, Alexander Winning, Christian Lowe, Dmitry Antonov, Elena Orekhova, Anastasia Lyrchikova and Kira Zavyalova; Editing by David Goodman)