VTB's non-call of bond will influence Russian market, says VTB

In research published today, VTB Capital examines the likely market impact of fellow group subsidiary VTB North-West’s decision not to call its subordinated Eurobond on Friday. Strategists say that this came against expectations and the event is likely to influence the whole Russian callable subordinated Eurobonds segment.

The issue comprises $400 million worth of 2015 notes, callable in September this year. VTB notes that, during 2005-2007, around 20 such callable issues were placed. Until now call dates have passed for only two issues (Sberbank’s $1 billion bond and VTB’s $750 million issue, both in February 2010), and in both cases the bonds were called.

Before Friday’s event, the market consensus was that the majority of banks would exercise their call options, given Russian banks’ tier two capital adequacy and the reputational benefits of good practice towards investors. Strategists believe that VTB NW’s decision will make investors reassess the probability of issuers calling similar bonds, as after the ‘breach of tradition’ the importance of the reputational aspect on the issuers’ decision will significantly diminish (but will not totally disappear).