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. Last Updated: 07/27/2016

EBRD Sets a Precedent, Offers First Ruble-Denominated Bond




The European Bank for Reconstruction and Development has launched a $49 million bond that gives investors exposure to the ruble but protects them from Russian credit risk, a senior bank official said Monday.


Launched Friday, the EBRD's Eurobond is worth 300 million rubles ($49.5 million) and will be repaid in dollars. It has a one-year maturity and offers a yield of 24 percent based on the current ruble-dollar exchange rate.


"It is the first deal denominated in rubles," said Ayefha Shah, head of funding at the EBRD's treasury department in London. "They are taking ruble currency risk and EBRD credit risk."


The ruble is expected to depreciate by about 6 percent over the next year, which would give investors in the EBRD note a dollar return of about 18 percent.


The return is less than that offered on Russia's treasury-bill market, where yields Monday were 25.38 percent for a nine-month bill, according to Skate financial services.


The EBRD's bond, however, offers investors exposure to the Russian ruble without taking on Russian credit risk or going through the complicated procedures involved with investing in Russian T-bills, Shah said.


The Central Bank's announcement Friday that it was cutting interest rates to 30 percent from 36 percent helped boost demand for the issue.


Shah said the EBRD immediately swapped the ruble note for dollars in order to avoid ruble exposure. The move essentially gave the EBRD a one-year return of 30 to 40 basis points below U.S. dollar Libor, which was quoted Friday at 5.781 percent. ING Barings was the lead manager on the issue.


Shah said the deal offers an attractive source of funding for the bank. "And it focuses international investors' attention on the Russian ruble market," she said.


The EBRD bond comes on the heels of the International Finance Corp., the World Bank's private sector investment arm, which launched a $100 million bond linked to the ruble last week, Reuters reported.