EBRD launches floating rate Rouble Eurobond

First linked to ROISfix, a benchmark widely supported by Russia’s Central Bank.

Author(s):    Richard Wallis
Date:    30 January 2013

The EBRD today launched a 7.5 billion rouble floating rate Eurobond, the first to be linked to the 3-month rate for Russia’s RUONIA Overnight Interest Rate Swaps (ROISfix), a benchmark based on over 85 percent of the Rouble interbank lending market and structurally less volatile than Russian alternatives.

The Bank’s 7.5 billion rouble Eurobond, issued this Wednesday, has a three-year maturity and pays a spread of 45 basis points over the 3-month ROISfix rate.   The issue will settle on 12 February 2013, and is lead managed by Raiffeisen Bank International AG. The bonds will be cleared through Euroclear and Clearstream and listed in London.

After opening books at 7.30 a.m. London time with spread guidance of 50 basis points, the book built rapidly, and by 10.45 a.m. was more than three-times oversubscribed, resulting in the lead managers revising the spread guidance downwards.

By midday, the over RUB 16 billion of orders were confirmed at the tighter spread of 45 basis points and the organisers consequently decided to increase the deal amount to 7.5 billion roubles from the 5 billion roubles that had originally been offered.

The book is expected to close by 1500 London time and allocations will take place after that.

For investors’ liquidity management strategy, a ROISfix-linked instrument is ideal because it is expected to be eligible for CBR repurchase operations (REPOs) and is therefore highly liquid, said the EBRD’s Treasurer, Axel van Nederveen.

The related index is an indicator of the expected cost of overnight money, which in turn reflects the liability base for the treasury operations of investors. The index itself should also be in line with the CBR’s monetary policy expectations, Mr.  van Nederveen added.

ROISfix, launched in April 2011 as an index of fixed interest rates against the Russian Central Bank’s (CBR) Rouble Overnight Index Average (RUONIA), gives market participants the possibility to hedge the interest rate exposure on their liabilities.

RUONIA, the underlying instrument for ROISfix, is based on a significant quantity of actual overnight unsecured transactions reported by 30 participating banks and is calculated on a daily basis by the CBR. It should therefore be less liable to distortion than indices reflecting indicative, as opposed to actual levels.

Given the importance of a credible money-market index for capital market  development, the EBRD, has for many years been actively promoting and participating in the creation of a competitive and transparent interest rate-setting mechanism in Russia, and is a member of the NFEA’s expert council.

The EBRD is both a significant rouble lender and borrower on the Russian market and has taken an active part in developing local capital markets. It traded the first ever rouble Overnight Index Swap after the RUONIA index was launched in September 2010 and concluded the first ROISfix-linked loan for the rouble market in July 2011.

In promoting these new instruments, the EBRD is both seeking to develop a product that is better tailored to its customers’ needs in terms of interest rate predictability, as well as link the Bank’s own liabilities to the same benchmark.

ROISfix is calculated on a daily basis by Russia’s National Foreign Exchange Association (NFEA) and the rate is quoted daily by Russian banks.

This is the EBRD’s first Rouble Eurobond since a 2.5 billion rouble five-year issue launched in June 2012, which pays a 6.5 percent coupon.

The EBRD’s triple-A rating has been confirmed by all three leading international rating agencies with stable outlook.