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EBRD invests in Russia’s power sector and for development of the country’s domestic capital market

According to BSR Russia, the European Bank for Reconstruction and Development (EBRD) has bought 10 year maturity bonds worth 800 million roubles from Federal Grid Company (FGC) to demonstrate its commitment to the Russian power sector and in the development of the country’s domestic capital market.

The 10 billion rouble issue is also the first 10 year tenure bond in Russia’s corporate history. FGC owns and operates Russia’s high voltage transmission networks. The publicly traded company is majority owned by the Russian government and its shares are traded on Russia’s MICEX and RTS stock exchanges, said BSR.

According to the report, the investment marks the second FGC issued domestic debt that the EBRD has subscribed to in less than a year. In November 2010, the EBRD bought bonds worth 3.66 billion roubles of a 15 billion rouble issue with a seven-year maturity, the maximum duration in Russia’s power sector till then.

The EBRD sees the success of the placement of this latest FGC non-callable fixed interest rate bond as key to the growth of the rouble debt market since it will provide a new long-term instrument critical for the development of the country’s pension funds and insurance sectors, said BSR.

The BSR report further reiterated that the bond’s 10-year maturity deepens the domestic capital market and sets a new pricing benchmark for issuers. It helps create a supply of instruments that meet the requirements of local and international investors, particularly institutional ones who are looking for long-term rouble exposure, and thus contributes to diversifying the investor base, indicated the report.

The latest FGC issue is the first of a series of nine tranches planned to raise a total of 125 billion roubles to fund the company’s extensive expansion program. The proceeds from EBRD’s subscription will go towards funding the modernization of a Kamala substation that plays a pivotal role in connecting the energy systems of western and eastern Siberia, indicated the BSR report.

The bond has been included in the Central Bank of Russia’s Lombard List, thus increasing its liquidity. Bonds on the Lombard list can be used as collaterals in repo transactions with the Central Bank. The annual coupon has been fixed at 8.5 percent through a book-building process.

The EBRD works together with the private sector financing projects in 29 countries from central Europe to central Asia.

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