On October 22, the Vedomosti business daily printed an article, Whose Perpetuity Is Cheaper, about Gazprombank’s recent issue of perpetual Eurobonds. The article said VTB Bank had to “pay much more for perpetual money” in July.
What we have to report in this respect is that VTB Bank closed a unique deal last July, floating so-called perpetual bonds, or bonds that have no maturity date, and raising $1 billion for its Tier 1 capital. Last week, another Russian bank also floated perpetual bonds to raise Tier 2 capital. However, given the different purposes of borrowing, the two instruments have nothing in common except for the term perpetual in the title. The terms, purposes and, consequently, interest rates, are completely different, which makes any comparison between the two illogical.
In this case, it would make more sense to compare the terms of Gazprombank’s deal with those of floating subordinated Eurobonds to raise Tier 2 capital, such as the $1.5 billion ten-year bonds that VTB recently floated at an interest rate of 6.95%.
Therefore, the Vedomosti writer has either made a mistake or demonstrated his ignorance of the issues discussed in his article.