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. Last Updated: 07/27/2016

Daiwa Lauds Russian Eurobonds

LONDON -- Russian bank Eurobonds offer a good buy in the wake of the Asian crisis because of the significant yield pick-up and the potential for improvement within the Russian banking sector, a Daiwa research report said.

"During and following the Asian crisis there have been definite opportunities for investing in the existing Russian bank Eurobonds which were trading extremely wide during the crisis, but which have subsequently tightened in as the market has regained confidence," Daiwa said Friday.

Although Russia's banking system is immature and fragmented, it is developing in a positive direction, Daiwa said.

"We expect some banks to emerge as powerful forces after the year 2000. ... A core group of banks is forming in Russia, and these banks are likely to become long-term survivors," Daiwa said.

Eurobonds of core banks SBS-Agro and Uneximbank currently offered a yield pickup of 300 to 400 basis points over the city of Moscow's Eurobonds, Daiwa data showed.

"We feel comfortable in recommending the debt of both SBS-Agro and Uneximbank," it said.

Like the rating agencies, the market makes distinctions between classes of Russian issuers, the sovereign being the preferred and most liquid credit followed by the major municipalities and corporates and then followed by the banks, Daiwa said.

"A number of investors interested in taking Russian nonsovereign risk have been content to invest in corporates, but have stayed away from banks which they find difficult to analyze," it added.

Daiwa said one of the stories to watch would be Tokobank as it was "suffering serious difficulties."

"We would not expect it to go under, but if it did we would expect significant spread widening for the Eurobonds of all noncore banks and probably also the core banks."

Although the onset of the Asian crisis in October 1997 closed the market for other Russian bank issuers, there are a number of banks which are expected to come to the market for the first time in 1998, including Menatep Bank, Bank Imperial, National Reserve Bank, Inkombank, Bank of Moscow, MOST-Bank, Avtobank and Sberbank.