CORRECTED-Toothless or not, Western sanctions bite Russian bonds

March 25, 2014

(corrects last paragraph to show that Timchenko was Gunvor’s co-founder, not a former CEO)

Western sanctions against Russia lack bite, that’s the consensus. Yet the bonds of some Russian companies have taken a hit, especially the ones whose bosses have been targeted for visa- and asset freezes.

Take state-run Russian Raiways. Its chairman Vladimir Yakunin, a member of President Putin’s inner circle, was on the sanctions list. He said he was flattered to be targeted but investors in his company’s dollar bonds are likely to be less thrilled. Russian Railways’ 2022 bond is now the cheapest quasi-sovereign bond in the emerging markets universe relative to its sovereign, Barclays analysts point out. The bond trades now at a 158 bps premium to Russia’s 2022 issue while the one-year average premium has been 114 bps, Barclays note.

But Russian Railways is not the only one.  Bonds issued by Russian state-run  companies such as banks VTB, VEB Sberbank and shipping company Sovkomflot were the worst performers in the  quasi-sovereign emerging markets space this month, having widened an average 25 bps in the past month against the sovereign. Russian companies account for 9 of the 10 cheapest quasis in emerging markets, Barclays data shows.

And private Russian companies’ debt has also suffered if their owners are subject to sanctions Another Kremlin insider Gennady Timchenko, a co-founder of oil trading firm Gunvor, appeared on the sanctions list. Gunvor’s 2018 bond, already under pressure, fell 5 points in one day last week and is down 11 cents on the dollar this month. Bonds in another energy firm Sibur, in which Timchenko has a stake, are off the lows hit last week but have fallen 7 cents in March.

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