MOSCOW: Investors have plenty of reasons to avoid the $6.2 billion of bonds issued by Russia’s most politically connected bank. VEB, as the state-owned lender is known, has been locked out of international debt markets by U.S. and European sanctions since 2014. It was saddled with bad loans after oil prices slumped, forcing the Kremlin to swoop in with a multi-billion dollar bailout. Revelations that the bank’s chief, Sergey Gorkov, met with Donald Trump’s son-in-law a month before the president’s inauguration then thrust it into the elections-meddling scandal. And now U.S. lawmakers have pressured Trump to strengthen Russian sanctions once again. But some of the world’s biggest money managers — flush with cash and attracted to VEB’s relatively juicy 5 percent yields — have instead been loading up on the Russian lender’s bonds. BlackRock Inc. and Fidelity Investments are among those buying dollar-denominated notes in secondary markets, so much so that they now hold more of the debt than at any point since the sanctions. VEB, whose full name is Vnesheconombank, is seizing on the market’s embrace and holding meetings with international investors in spite of the optics. “Western investors are a lot more comfortable with Russian credit risk as the segment remained resilient during a very challenging period,” said Apostolos Bantis, a credit strategist at Commerzbank AG in Dubai. “The Trump investigation and new sanctions won’t derail the momentum.” BlackRock stressed that its purchases are fully compliant with financial sanctions, which also target Gazprombank JSC, Sberbank PJSC and VTB Group. A spokesman for the world’s biggest money manager said the overwhelming majority of its VEB positions are held by funds that mirror benchmark bond indexes.
During a series of meetings with some bondholders in the U.S. and U.K. in May, VEB executives discussed finances and strategy, according to people with knowledge of the talks. One presentation included a photo of Vladimir Putin shaking Gorkov’s hand, reminding investors that the Kremlin has their back. An official for VEB declined to comment on its meetings with international bondholders, the effect of sanctions on its funding or the meeting between Gorkov and Jared Kushner, Trump’s son in law.
