Russian Banks to Initiate Trading in Islamic Debt

Russia's second-largest bank, VTB Group and Gazprombank are aspiringto become the first Russian borrowers to sell Islamic debt so as to attract Middle Eastern investment.
(Ahlul Bayt News Agency) - Russia's second-largest bank, VTB  Group and Gazprombank are aspiringto become the first Russian borrowers to sell Islamic debt so as to attract Middle Eastern investment.

"We strongly believe it is just a matter of time for Russia to catch up with the global market for Islamic finance," said Zaid Maleh, director of Investment Banking for Middle East and Africa at VTB Capital, the investment business of Russia's VTB Group.

Standard & Poor's rated Russia at BBB, which is its second-lowest investment grade, while Moody's Investors Service ranks Russia at Baa1, the third lowest investment-grade rating.

Russia is well placed and has high potential to promote sharia compliant offeringssuch as infrastructure, agriculture, Maleh notes. According to estimates from  Bloomberg and Moody's Investors Service there is an estimated $800bn pool of Islamic cash yet to be tapped.

This year VTB Group aims to raise about $200 million by issuing Shariah compliant Islamic bonds,  sukuk. The lender's deputy chairman, Herbert Moos said in an interview on Wednesday that Gazprombank, the lending arm of gas export monopoly Gazprom, is in talks with at least 10 Moscow-based companies on arranging a sale and will meet investors in the Persian Gulf in September, said Alexander Kazakov, director of structured and syndicated finance.

"We'll probably see an issue in dollars, ranging from $100 million to $200 million" by the end of the year, Kazakov said in an interview this week. "We've been talking to Russian companies from various sectors, including metals, food, oil and gas."

The banks collaborated with borrowers in neighboring countries including Kazakhstan, Thailand and Senegal so as to tap the $4.9 billion global sukuk market, which is mainly prominent in the Middle East and Malaysia. It is expected that yields of about 6 percent would attract demand, as stated by Sarah Al-Suhaimi, who helps manage more than $2 billion of assets, at Riyadh, Saudi Arabia-based Jadwa Investment. According to the HSBC/NASDAQ Dubai U.S. Dollar Sukuk Index. Currently the average sukuk yields are at about 4.2 percent

VTB has $17.4 billion of total debt.This year the yield on VTB's dollar bonds due in 2015 dropped by one basis point to 4.54 percent as of Wednesday and has declined 80 basis points so far this year, touching a record-low 4.36 percent on April 6.

Moscow-based bank Gazprombank's has $4.3 billion in debt. Its 2015 dollar bonds yielded 4.81 percent as of Wednesday, which is down by 94 basis points in the current year.

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