After a roadshow late last year, the bond issue from Ardshinbank (ARBANK) was postponed. The bank has now returned to the bond market. Guidance for a US$-denominated 5Y bond was published on January 20.
The IPT for Ardshinbank's planned US$300mn 5y bond is 6.5-6.75%. This equates to 5y US$ MS+485-510bps (approx. only). To put this in context, indicative levels for the ARMEN 2025 and 2029 bonds are shown in the table below. The IPT for the new ARBANK bond places it over 300bps wider than the ARMEN 2025 bond. The indicative ARBANK/ARMEN 2025 spread multiple is more than 3x.
|Bond name||Duration||Mid YTM (%)||Mid z-spread (bps)|
|ARMEN 7.15% 2025|
|ARMEN 3.95% 2029||8.05||3.80||204|
In 2019, Ardshinbank bought back a eurobond that was due to mature this year. We note also that the Republic of Armenia (ARMEN) bought back some of a short-dated security – based on Bloomberg data, the ARMEN 2020 security now has less than US$100mn outstanding, following at least two buybacks. In addition, the Armenian government issued a US$500mn 10-year bond last year. Both Armenia and Ardshinbank were upgraded at Moody's in 2019. Armenia was also upgraded at Fitch. Armenia is now rated Ba3/BB- (Moody's/Fitch) and Ardshinbank is rated Ba3/B+ (also Moody's/Fitch).
In the table that follows, we have shown where select bank bonds are quoted versus the relevant sovereign securities. This may provide some context when assessing the ARBANK new issue. We note that the DBKAZ 2026 bond has less than US$107mn outstanding. Further, the IBAZAZ 2024 bond was issued post-restructuring and is primarily held by an Azerbaijan state-owned entity.
|Bond pair||Spread difference (bps)||Spread multiple (x)|
|DBBYRB 2024 vs. BELRUS 2023||82||1.35|
|VEBBNK 2023 vs. RUSSIA 2023||63||2.02|
|EXCRTU 8.25% 2024 vs. TURKEY 2024||79||1.27|
|EXCRTU 6.125% 2024 vs. TURKEY 2024||66||1.23|
|DBKAZ 2026 vs. KAZAKS 2025||230||5.82|
|BNDES 2024 vs. BRAZIL 2024||84||2.41|
|DBMMN 2023 vs. MONGOL 2023||69||1.24|
|IBAZAZ 2024 vs AZERBJ 2024.||321||3.74|
|SQBN 2024 vs. UZBEK 2024||182||2.36|
Unlike the banks whose bonds are listed in the table above, ARBANK is not state owned. This is important to bear in mind when looking at the bank-sovereign bond pairs in the table. Ardshinbank is ultimately controlled by Karen Safaryan, who is also the chairman of the board. Safaryan has occupied this position since 2003, when the lender was established. Given this ownership, there are likely to be questions about related-party exposures. June 2019 disclosures show the ratio of related party exposures was 9.5%, compared with the regulatory limit of 20%.
The table that follows shows key figures for Ardshinbank and for select lenders in Georgia, Azerbaijan and Kazakhstan that have bonds outstanding. Ardshinbank is smaller than these entities, but the ratings are not too dissimilar.
|9M 2019, US$mn/%||Ardshinbank||Bank of Georgia||TBC Bank||Int'l Bank of Azerbaijan||Halyk Bank|
|Tier 1 ratio||n/a||13.3%||14.7%||28.7%||20.0%|
Given total assets of less than US$1.5bn at Ardshinbank, there may be questions about the target size of US$300mn. We think it is likely that index considerations played a role in the target size. Further, we note that two-thirds of the new bond is to be used to repay existing obligations, resulting in a lower (but still significant) net increase in liabilities. Whether or not the bank will decide to place the full US$300mn remains to be seen.