CAPITAL MARKETS SURVEY: 2014 in CEE/CIS proves rich in risk, relatively poor in rewards

By bne IntelliNews February 6, 2015

Guy Norton in Zagreb -


2014 proved to be an extremely testing one for issuers, lead managers and investors in the Central and Eastern Europe/Commonwealth of Independent States (CEE/CIS) region, dominated as it was by the political-economic fallout from the bitter standoff between the US and Europe on the one side and Russia on the other side over the bloody events in Ukraine. Add in one-off fears about the general health of the global economy, the plummeting price of oil, uncertainty over the continued use of quantitative easing and renewed concerns over the fate of the embattled Greek economy, and the capital markets environment in 2014 ultimately proved to be as challenging as when the credit crunch and associated global economic slowdown hit home in 2008-2009.

As such issuers, lead managers and investors in CEE/CIS had to have their wits about them if they were to be successful. Arguably a crystal ball-like ability to read which way the political winds were blowing and having nerves of steel proved to be every bit as important as having a strong credit story to tell when it came to capital markets success. (To download full report in pdf form, please click here.)


Nowhere was that more true than in the equity markets, where the decision to press ahead with a landmark initial public offering (IPO) at a time of rising chaos in Ukraine paid off for the selling shareholders in Russian supermarket chain Lenta, which yielded the largest equity market issue of the year from the region. On the basis that fortune favours the brave, bookrunners Credit Suisse, JPMorgan, VTB Capital, Deutsche Bank and UBS were arguably vindicated in their decision to proceed with a deal, which although it just failed to achieve the landmark issue volume of $1bn, did nevertheless actually make it to market, which a great number of mooted Russian issues singularly failed to do.

Although the share issue that valued the company at $4.3bn was priced at the lower end of the Lenta's indicative price range of $9.5-11.5 per global depository receipt, the deal nevertheless reaped a decent return for the selling shareholders – private equity groups TPG Capital and VTB Capital, alongside the European Bank for Reconstruction and Development (EBRD). 

And although for most of the year the issuance environment for Russian equity issuers proved to be less than ideal, Russian stock market operator Micex and Qiwi, the operator of Russia’s largest instant payment system, both managed to launch sizeable additional share offerings in 2014 following on from the success of their IPOs in 2013.

Elsewhere, new issue activity was fairly limited. However, Georgia’s TBC Bank capitalised on the good reputation of the Georgian banking sector to join Bank of Georgia on the London Stock Exchange with a deal worth $256mn. And after a number of botched privatisation sales, Romanian power company Electrica’s IPO on the London and Bucharest bourses proved a highlight from a country which also spawned follow-on issues by real estate developer New Europe Property Investments and energy company Romgaz. Finally, towards the end of the year insurer AvivaSa Emeklilik ve Hayat provided some welcome diversification with a relatively rare IPO from Turkey.

Overall, though, 2014 proved to be a disappointing year on the equity front, principally due to the cancellation of a large number of potential deals from Russia, and the prime issue this year will be whether those offerings can be resurrected if sentiment towards Russia improves.


Sentiment in the syndicated loan market in 2014 remained relatively robust for entities from CEE/CIS, with a wide range of borrowers from the region able to secure jumbo-sized transactions. Although with the honourable exception of mobile operator VimpelCom, sizeable syndicated loans from Russia were notable by their absence, but borrowers from other countries tasted success.

Sovereigns Bulgaria and Turkmenistan took advantage of improving sentiment towards them to launch landmark deals, while well-known oil and gas companies from the region, including Hungary’s MOL alongside Poland’s PKN Orlen and PGNiG, also secured sizeable transactions with deals that ultimately proved well timed given plummeting commodity prices at the end of the year. As did Turkey’s Star Rafineri, which offered syndicated lenders a relatively rare opportunity to grab a large slice of Turkish corporate risk.

On the sovereign Eurobond front, 2014 witnessed some notable successes, with Slovenia taking advantage of improving sentiment towards the country after it successfully averted a meltdown by securing close to $6bn in funding, while Poland, arguably the safe haven play of choice in the region, raised just under $7.5bn.

While other regular issuers such as Hungary, Turkey, Romania and Slovakia all tasted success, the return of Kazakhstan to the international bond markets after more than a decade with a $2.5bn issue was undoubtedly one of the highlights of the year. The success of that offering was undoubtedly key to state oil and gas firm KazMunaiGas being able to issue the biggest corporate Eurobond of the year out of CEE/CIS, with the launch of a $1.5bn offering in the wake of the popular sovereign deal.

Although both Russian Railways with a brace of deals totalling over $1.4bn and Gazprom with a $1bn equivalent issue were able to access the international bond markets, Russian issuers as elsewhere in the capital markets were largely starved of market access in 2014. Whether that continues in 2015 – and with few signs of the Western sanctions being removed anytime soon, most likely it will – will have a major influence on corporate bond issuance volumes this year.

Other issues of note beyond a flurry of benchmark issues from Central European energy companies from Poland, Slovakia and the Czech Republic included Turk Telekom offering up a rare opportunity for investors to access Turkish corporate Eurobond risk with a $1bn issue. 

In terms of financial sector issuance, Turkish banks proved to be the pick of a bunch, launching a series of well-received transactions from well-known and respected lenders such as Garanti Bankasi, which kicked off the bank funding party for the country’s lenders with a $750mn deal in April. While Russian banking titans Gazprombank and Sberbank both raised over $2bn apiece in the first half of the year, the combination of the deterioration in investor sentiment towards Russia and the imposition of sanctions on banks from the country in the second half of the year meant that 2014 once again proved to be a disappointment from a Russian perspective.

That ultimately proved to be the principal leitmotif in the capital markets in CEE/CIS in 2014, and the multi-billion-dollar question this year is whether that theme will be reversed or not.  Only time will tell. 


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