TMK Eurobonds hit by ruble fall

TMK bonds may continue to fall due to investor concerns about the ability of Russian companies to refinance debt spreads of the banking industry.

The revenues of the largest pipe manufacturer with production facilities in Russia, Kazakhstan, Romania and the United States are in rubles, and costs are in dollars, so the company suffers from the devaluation of the ruble. Pipeline companies are the only losers from the depreciation of the ruble among companies in the metallurgical and mining industries. Pipes were priced in local currency and were consistently lagging behind steel costs, and due to the bargaining power of strong oil and gas companies.

TMK brings together creditors, including VTB, OJSC Alfa-Bank and CJSC Russian Standard Bank, which have bonds traded at problem levels. The Ministry of Finance said last week that borrowing costs have increased for Russian companies, international sanctions are limiting their access to financial markets in the face of the need to roll over borrowing.

Banks represent the majority of problem borrowers, forcing the government to pledge cash to bolster the country's lenders. The steel and pipe manufacturer Evraz Group SA also faces troubled debts. In addition, the Russian economy, as suggested by international experts, will be in recession next year, as falling oil prices could send the ruble to the worst times since 1998.

“I don’t think that TMK will continue to fall, as they still have some liquidity on board and, most importantly, for a long time they will be one of the key beneficiaries of the Russia-China gas pipeline,” said Sergei Dergachev, who is involved in asset management emerging markets at Union Investment Privatfonds GmbH in Frankfurt.