Russia’s return to bond market fails to lure Western investors

Russia’s return to the international bond market has generated interest at home but has not attracted foreign investors, Russian media and analysts said Tuesday.

By midday Tuesday, the deal — Moscow’s first attempt to return to the markets since being hit by Western sanctions over Ukraine — had attracted some $6.3 billion in bids, according to banking sources quoted by Russian agencies.

The bond issue is partly seen by the Russian finance ministry as a test of the market waters, though the primary motivation is the country’s cash-strapped budget in a recession economy.

Almost all investors are Russian, Vedomosti business daily said Monday, citing its own sources.

The lack of foreign investors pushed the government to keep the bidding open on Tuesday though the initial plan was to hold it for one day only, a finance ministry source told Vedomosti.

The United States has warned that its banks must not take part in the the bond offer, which has likely scared off some potential interest, even though no US law prevents American investors from bidding.

“Demand seems to be mainly coming from local sources: foreign investors do not appear to be participating actively,” wrote Alfabank economist Natalia Orlova.

US State Department spokesman Mark Toner confirmed that sanctions imposed in the wake of the Ukraine crisis are still in place and that, in general, American investors should be wary.

“We believe there are risks, both economic risks and reputational risks, associated with doing business with Russia,” he said.

Toner said that, through their sanctions, the US and Europe “are sending a clear signal to Russia and its leadership that it must comply with its Minsk commitments and end its occupation of Crimea.”

Russia’s second-largest bank VTB arranged the issue which, according to sources quoted in the media, consisted of 10-year bonds with expected yields of between 4.65 and 4.90 percent.

The last time Russia made a eurobond issue was in 2013, prior to its annexation of Crimea from Ukraine and the breakout of conflict in eastern Ukraine, which the West says Moscow is fuelling. At that time, it raised about $7 billion.