Reuters: Bankruptcy News: VTB stirs the pot with Russia's first perp

Reuters: Bankruptcy News Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

VTB stirs the pot with Russia's first perp Jul 27th 2012, 15:39 By Sudip Roy Fri Jul 27, 2012 11:39am EDT LONDON, July 27 (IFR) - State-owned lender VTB defied the odds this week when it priced the first ever Russian hybrid Tier 1 issue tighter than many had expected, silencing doubters who argued the unrated nature of the deal and variation language would force the issuer to pay up. The USD1bn perpetual non-call 10.5 year transaction was the second deal of its type from an emerging markets lender, following Banco do Brasil priced in January this year and priced at 9.5%, well inside the 10%-11% many has expected. Like the Brazilian bank's transaction, the VTB perpetual is Basel I compliant but the issuer will be able to change the terms without bondholders prior approval to make it conform to Basel III standards on bank capital instruments if the Russian central bank eventually adopts the new guidelines. That's a big 'if' as there's no firm timetable as to when that might be. The flexible structure - which no Western European bank would be able to replicate - caused a stir among some investors uncomfortable taking on the risk of buying a note which features were not fixed at the time of pricing. "The structure of the bond allows the issuer to materially change the key covenants of the bonds, without pre-approval from the bondholders. While this is aimed at ensuring compliance with the potential Basel III regulations, we would prefer if the bondholder has a say before making such changes," said Bank of Singapore, the private baking arm of OCBC, in a note recommending clients didn't participate. Another investor, however, defended the structure saying the terms are transparent, with loss absorption only kicking in after a full writedown of the equity base. "They are telling us exactly what will happen if certain things happen. This is disclosed upfront and they are paying for that, though whether they are paying enough is a different story." A rival banker welcomed the emergence of a new structure from the region. "It's really positive for the market to see another example of an institution that is in a jurisdiction where Basel III has not been implemented but can do a deal that navigates the current regulatory requirements while being forward looking," said one banker. TIGHT PRICE The other issue that stoked controversy was the pricing. Guidance was announced during Asian trading hours on Wednesday at 9.50-9.75%, tighter than expected. The obvious comparison was Banco do Brasil's perp issued in January, which was trading at a yield of 7.65% at the time of announcement. Given that the difference between the Brazilian state-owned bank's senior unsecured 2020 note and VTB's equivalent is 250bp, the same difference for the perps would suggest a 10.15% starting point for VTB's, with a new issue premium to be added on. "At initial price whispers of 9.5%-9.75% new VTB Tier 1 bonds are coming at approximately 200bps behind Banco do Brasil (Banbra) perpetual bonds and 150-175bps behind Rabobank 8.4% perpetual bonds. VTB senior bonds have exhibited more volatility compared to both Banbra and Rabobank in the recent past," said Bank of Singapore. Given VTB's chequered history in the capital markets - the lender chose not exercise a call option in 2010 which peeved investors - and uncertainties over its ownership since the government plans to privatize the lender over the next five years, some accounts were hoping for more generous terms. "We thought it should have come at about 10%," said one fund manager. Another investor was less bothered, arguing that on an absolute yield basis the level was still attractive especially for a well-known name. The bonds were largely sold to private banking accounts in Asia and Switzerland, who were enticed by a standard 50 cent discount as a sweetener. Many institutional funds were also forced to steer clear by the lack of rating. "My understanding is that they didn't really want the deal to be rated as the rating would have been deep into junk territory, mainly because it wouldn't have had built in sovereign support which the senior rating has," said one FIG analyst. Investors reported there was a lot of flipping in the grey market, where the bonds were down one point on the bid side and 0.25% on the offer ahead of their launch. Priced at par, the bonds opened at 99.50-100 before edging up to 99.75 on the bid side. (Reporting by Sudip Roy, Editing by Helene Durand) Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions