UPDATE 3-Investors snap up Russia’s $5.5 bln Eurobond

By Dmitry Sergeyev and Dasha Korsunskaya

MOSCOW, April 22 (Reuters) – Russia said on Thursday it may not need to tap international debt markets again this year after a ‘successful’ placement of its first Eurobond in over decade raised $5.5 billion and paved the way for cheaper corporate borrowing.

As investors rushed to buy the new issue — Russia’s first since its 1998 domestic default — demand exceeded supply almost five-fold, ensuring tight pricing despite a rise in risk aversion. But the bond’s price fell in early official trade following further bad news on Greece’s debt woes.

‘We think that we had a successful placement. The main thing that we achieved is a significant reduction of spreads for Russia. Historically these are the lowest rates that Russia could have allowed itself,’ Russian Finance Minister Alexei Kudrin told Reuters.

He said another Eurobond this year may not be needed due to strong domestic liquidity.

Russia sold its Eurobond at a coupon rate of 3.625 percent for the five-year tranche and 5.0 percent for the 10-year tranche in the fourth-biggest emerging market dollar bond placement ever, according to Reuters data.

Investors had expected the issue to total $7 billion, but the Finance Ministry seemingly preferred to sacrifice some volume to win a tight price.

‘The amount is definitely lower (than expected) … The pricing has come in tighter than the secondary market bonds … They probably sacrificed some volume in order to do that,’ a London-based fund manager said.

Russia decided to return to the external debt market to patch a budget hole and erase a budget deficit expected to be at least 6 percent of GDP this year. It had originally planned to borrow up to $17.8 billion.

The order book for the Eurobond topped $25 billion, sources told Reuters and long-term investors were likely more welcomed than hedge funds, so the liquidity may suffer.

GREECE, GOLDMAN WEIGH

Despite huge demand from investors globally, inspired by high oil prices, Russia’s main export, and a debt level below 10 percent of gross domestic product, the Eurobond roadshow was partly overshadowed as Greece’s debt crisis and fraud charges against Goldman Sachs triggered risk aversion.

‘Market sentiment was hit by the Goldman Sachs case and the situation with Greek debt. If it was as good as in the beginning of the roadshow, the Finance Ministry could possibly have counted on an even better price,’ Nikolay Podguzov, analyst at Renaissance Capital said.

The bond was quoted with a bid/offer of 98.500/98.5625 by 1421 GMT for five years and 98.4375/98.5625 for 10 years, versus a re-offer price set at 99.475 and 99.363 percent of nominal value, respectively.

‘The trading is quite active and it is difficult to single out Russia’s fall from the other emerging market countries,’ a trader with a major Russian bank said.

The new Eurobond is expected to push down corporate yields, paving the way for more companies to tap global markets, where $5.9 billion worth of corporate bonds have been sold so far this year and the latest issue from Russian Railways was 10 times oversubscribed, analysts said.

‘A lower benchmark for Russian borrowings might also set a lower risk-free rate for the market, supporting company valuations and further corporate debt issues,’ Unicredit said.

(Additional reporting by Sujata Rao, Oksana Kobzeva, Toni Vorobyova, editing by Mike Peacock and Susan Fenton) Keywords: RUSSIA EUROBOND/

(dmitry.sergeev@reuters.com; +7 495 775 1242; Reuters Messaging: dmitry.sergeev.reuters.com@reuters.net)

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