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RBC daily: Herbert Moos, VTB: "By the end of the year, VTB may offer half a billion dollars in perpetual Eurobonds"

October 26, 2012 RBC daily
Major Russian banks started to borrow on the international market by issuing long-term Eurobonds. Deputy Chairman of VTB Herbert Moos told the reporter of RBC daily Ivan Shlygin about the difference between perpetual Eurobonds of VTB and Gazprombank and advantages of this instrument over IPO, and shared plans for future offerings. - What caused this interest of Russian banks in perpetual Eurobonds?` - First of all, it is a complementary product that allows raising funds for the first-tier capital without diluting shareholders' stakes. In case of IPO/SPO this problem is quite serious. We looked at a successful placement of perpetual bonds by one of Brazil's banks this year and decided to supplement our line of instruments. - What is the fundamental difference between perpetual bonds of VTB and Gazprombank? - The only thing they have in common is their name. In everything else the differences are critical: perpetual bonds of VTB affect Tier 1 capital, and Gazprombank's Tier 2. The offering rate of our perpetual bonds is very good. Our return on investment is about 15%, the rate is 9.5%, the difference between these figures will be the bank's income. It would be more appropriate to compare VTB's ten-year bonds placed in early October with a yield of 6.95% and perpetual bonds of Gazprombank yielding 7.875% p.a. We should not forget that our bonds were placed for ten years. Had we placed them for a period of five years, the yield would have been even lower. - How well are VTB's recent issues trading now - both ten-year and perpetual? Do you plan any offerings before the year-end in this connection? - We are now witnessing huge demand for debt instruments. The yields on ten-year UST and government bonds of the eurozone are at very modest levels: under 2% p.a., so investors are looking into Russian companies with great interest. Our issues are trading above the offering: average weighted price for perpetual instruments is now in the order of 102% of par, and 104% of par for 10-year issues. In this context we are studying the demand, based on which we plan to tap the market again before the end of the year. We are considering both types of instruments. Offering size will be determined later. For perpetual Eurobonds we are looking to offer half a billion dollars as a guidance. - How is your preparation for the SPO going? Did you change the time when you intend to tap the market due to your bond market plans? - The situation is most favourable to conservative instruments such as Eurobonds. We will wait for conditions to improve to offer shares. Preparing for an SPO takes time. VTB already privatized a 10% stake in February 2011, becoming the first bank to successfully implement this government program. The next banking privatization was in 2012, when Sberbank successfully followed our example.