Sberbank, Russias largest bank, will exercise its five
year call option of its $1bn 10 year subordinated 2015 notes
next February in an investor-friendly move that has boosted
market confidence in the banks balance sheet.
Markets had priced in Sberbanks refusal to exercise the
call option and the 2015s have been trading to final maturity
(at a higher interest rate) rather than the February 2010 call
date. Analysts say the 2015s notes should compress by 10% on a
fair value basis. Issuers close to the maximum allowable tier
two capital limit in their capital structure typically opt to
exercise the call option as market convention dictates while
averting higher coupon payments on subordinated notes after the
However, cash-strapped financial institutions globally have
opted to not buy back debt in the face of weak balance sheets.
Deutsche Bank, Spains Banco Sabadell and South Korea
lender Woori disheartened investors by not calling back their
subordinated debt contrary to market expectations.
"Sberbanks decision to call the option and announce this
so early is a good, confident signal to the market," said one
debt syndicate head at a Russian investment bank in London. The
news is a "harbinger for similar actions by other large Russian
banks," to follow suit, said Barclays Capital in a research
note. It argues large Russian state backed institutions, such
as VTB with its 2015 notes, will opt to replace foreign
subordinated debt with cheaper local currency loans from
Russian government lenders.
In the bull run, yield-hungry investors slid down credit curves
of corporate borrowers in the region and snapped up short to
medium-term deals with complex capital structures that offered
three to five year call options. However, the market will not
be tested until 2011 when issuers will announce their
intentions to exercise their call options, said bankers.