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24 Jul, 2009 14:53

Risk appetite brings Russian bonds into the limelight

Rouble stabilization is boosting investor appetite for risk and Russia’s bond market. In the first half of the year companies issued bonds worth $11 billion, with distressed company offerings also getting attention.

Financial companies and state owned giants like Russian Railways and Gazprom have been active in the bond this year, with fund managers saying the issues of some have been oversubscribed. Vadim Pogosyan, Head of Retail Products at Alfa Capital says the interest is focused mainly on the higher rated offerings.

“There is a large volume of non-invested funds, investors are ready to enter the market. When issuing bonds some companies couldn’t satisfy the demand. But it happened with firms that have high credit quality. There is some hesitation about the second and third tier companies with low credit rating.”

But with risk appetites rising, some investors are buying bonds of distressed companies. This week Alfa group bought debt of a large Russian developer Mirax Group for $200 million. Now the company may claim more than $300 million from the troubled borrower.

Mikhail Morozov, Vice President, Derivatives and Structured Products, at Unicredit Securities, says it’s a classic distress play.

“Alfa has done pure distressed debt investment. They understand the business environment, they understand how the developer works in Russia. They may believe that the real estate market will soon stabilize. They bought it at huge discount, and in a couple of years will resell it at a price two times higher.”

Just a year ago it was the borrower that dictated credit conditions – now the situation has turned around with companies praying for the chance to refinance their debt.  With more Russian firms failing to fulfill their credit obligations, analysts expect a wave of debt purchases by first and second tier companies before the end of the year which may result in a significant property redistribution.