Russia placed €1bn worth of seven-year bonds under close subscription yielding 3%, with foreign investors accounting for 75% of the placement, Reuters said on November 28 citing the deputy head of VTB Bank Yury Solovyev.

The issue tested the strength of investor appetite amid the military crisis in the Azov Sea that started on November 25 and saw the ruble tumble in value to the dollar and federal OFZ treasury bonds rates fall the next day. Last time the Finance Ministry placed Eurobonds was in 2013 issuing seven-year bonds worth €750mn at 3.625% yield.

"Despite high market volatility and complicated political situation, the placement was in high demand among foreign investors," according to Solovyev.  Most of the investors participating in the first Russian euro placement in five years were from UK (55%), followed by Russia (24%), the EU (18%), and the US (3%). 

UralSib Capital suggested on November 28 that the bonds were sold to investors already subscribed before the Azov Sea crisis broke out, which would explain the issue defying market pressure. The bank compares the yield to Gazprom's euro-denominated issues and estimates that the Finance Ministry proposed a premium of about 20bp to the secondary market, seen as moderate.

Analysts surveyed by Vedomosti on November 27 on the surprise euro placement noted that currently the European Central Bank (ECB) interest rates are lower than the US Federal Reserve rates, which would make euro placement more attractive and less costly for the ministry in any case.

The analysts also believe that the issue could be placed with large Russian investors alone that would want to shield themselves from sanctions by investing in euro-denominated paper. The placement would also test the interest of European investors, should the US buyers be blocked from investing in Russian sovereign debt under tougher sanctions which are now due to be debated after the Christmas holidays.

Deputy Finance Minister Vladimir Kolychev said that Russia is unlikely to tap foreign debt market by the end of the year given the looming holiday season, Reuters said citing Kolychev's remarks at the Russia Calling! investment forum.

In March, the Finance Ministry placed $4bn worth of Eurobonds that generated high demand of $7.5bn despite escalating tensions with the West. Out of the placement $1.5bn was a new issue and $2.5bn refinancing of old issues. Overall the ministry budgeted $7bn of Eurobonds for 2018, out of which $4bn would be used to exchange outstanding bonds and $3bn is of net issues.