Russian Billionaires in Eurobond Sprint as U.S. Lists Elites

(Bloomberg) -- The risk of appearing on a U.S. list of Kremlin-connected billionaires is giving Russia’s richest an extra reason to join the flood of emerging-market bond sales.

Oleg Deripaska, Mikhail Fridman, Suleiman Kerimov and Andrey Guryev -- worth a combined $33 billion according to the Bloomberg Billionaires Index -- have sold or are marketing international bonds this month via the companies they or their families control. With one eye on the Treasury report due this month that could imperil future deals, the businessmen are seizing on the cheapest developing-nation borrowing costs versus Treasuries in more than three years, analysts said.

The "main motive” behind the current offerings is to take advantage of the tight spreads, said Denis Poryvay, an analyst at Raiffeisenbank in Moscow. “If companies are hit with new sanctions, the bond market will be closed for them, so this creates additional pressure to sell now.”

While the Treasury list doesn’t entail sanctions on those included, it raises concerns that they could be targeted in the future as the U.S. seeks to punish Russia for its role in the Ukraine conflict and alleged meddling in the 2016 U.S. election. Adding to the urgency for borrowers, the Federal Reserve is poised to push on with interest rate increases, potentially cooling demand for bond sales from riskier markets after a record start to the year for issuance.

Read more: Mnuchin List of Putin ‘Oligarchs’ Jolts Russia’s Elite Class

Europe’s largest phosphate fertilizer producer, PhosAgro PJSC, priced $500 million five-year notes at 3.949 percent last week, the lowest rate in its corporate history. The company, which is controlled by the Guryev family, tightened guidance from an initial rate of about 4.375 percent.

The Russian bond market is hot, according to Andrey Solovyev, global head of debt capital markets at VTB Capital, which helped organize the Phosagro placement. At the peak, investors submitted $2 billion of bids in the deal, he said. As of Jan. 22 last year, companies hadn’t placed any foreign bonds, data compiled by Bloomberg show.

Bond Boom

The sales feed into a bond boom that’s sweeping emerging markets as investors hunt for higher returns and borrowers lock in low rates. Issuers from Argentina to China have raised $64.7 billion in dollar- and euro-denominated bond placements, up from $50.5 billion in the same period last year and the most since Bloomberg started compiling data in 2007.

Read more: Sellers Want to Sell, Buyers Want to Buy: Emerging Bond Boom

Polyus PJSC, Russia’s biggest gold-miner, has mandated banks to market eurobonds and sold $250 million of convertible bonds at a 1 percent rate. The company is issuing debt for the first time since Kerimov was charged with money laundering in Nice in November.

Deripaska’s United Co. Rusal and Fridman’s Alfa Bank are also due to market Eurobonds this week as they seek to refinance debt and increase capital, respectively. Phosagro and Polyus also aim to raise funds for refinancing, according to the companies.

“The market is offering really good terms now,” said Egor Fedorov, an analyst at ING Bank in Moscow, who predicts that new issuance in Russia will be similar to last year. “The prospect of new sanctions later this year -- which may involve more Russian companies -- may also be one of the reasons" companies are tapping the market, he said.

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