Sergei Kuznetsov in Minsk -

Belarus could sell Eurobonds in late 2012 or early 2013, First Deputy Finance Minister Vladimir Amarin told reporters on April 19. Who would buy international bonds from this economically struggling country? bne can reveal that the Belarusian government regards investors from Southeast Asia as the likeliest buyers of its debt.

"At the end of the year, it will be more realistic to weigh the possibility of offering Eurobonds, which may happen in late 2012 or early 2013," Amarin said. He added that the Belarusian authorities "are monitoring the situation, and as soon as the window of opportunity opens and if the economic situation in Belarus is good enough, we will consider the possibility of floating Eurobonds."

Meanwhile, Belarusian Economy Minister Nikolai Snopkov tells bne that the Belarusian authorities have investors from Hong Kong, Singapore and Malaysia in mind when pondering whom to sell to. "There is an appetite for a possible Belarusian Eurobond issue in this region," he says, adding that the Economy Ministry is discussing with the Finance Ministry whether it's necessary to issue the bonds in 2012.

Prospects

Belarus made its debut in the Eurobond market in 2010, with $1bn issue of dollar bonds maturing in 2015 with an 8.75% coupon. The issue was rated 'B1'/'B+'. In January 2011, Belarus issued another $800m worth of Eurobonds.

Since then, however, the price of the bonds on the secondary market have plunged as the country's economic prospects deteriorated and its credit ratings were cut. Standard & Poor's now rates Belarus down at 'B-', though on April 18 it affirmed its rating and revised the outlook to stable from negative, reflecting its view of "signs of stabilization in Belarus' economy. Foreign currency reserves have strengthened, immediate pressure on the exchange rate has eased, and inflation, although still very high, is decreasing. Furthermore, short-term external financing constraints have lessened because Russia has injected inflows of funding and capital equal to 12% of Belarus' 2012 GDP."

If Belarus makes up its mind to issue Eurobonds, it will have hard time choosing the arrangers. In 2011, BNP Paribas, Deutsche Bank and The Royal Bank of Scotland refused to cooperate with the Belarusian authorities in future Eurobond projects after the December 2010 presidential elections that were heavily criticized by the international community and the subsequent crackdown on protestors. These three banks, along with Sberbank of Russia, were lead arrangers of the previous Belarusian Eurobonds issues.

Most importantly, it is not clear whether the market environment will be conducive for Belarus to offer new Eurobonds in late 2012 or early 2013. Independent financial analyst Alexander Mukha tells bne that because investors currently perceive the country risks as very high, bond yields have jumped, which prevents the country from borrowing on favourable terms. "Investors perceive Belarus' risks as highest of all the developing nations that float Eurobonds, second only to Argentina," Mukha says, adding that the downgrading in Belarus' credit ratings and growing political risks have "narrowed the range of potential investors."

"In order to reduce the yield on its sovereign bonds and cheapen new loans taken by Belarusian residents, Belarus needs to focus on normalizing its political relations with the EU, which will reduce the political risks of investing in Belarusian securities," Mukha says.

Further, Mukha says Belarus should seek a new loan from the International Monetary Fund within the framework of a new bailout programme, "because the IMF resources are cheaper and longer compared with other foreign creditors," as well as step up efforts to encourage FDI inflows, including through expanding the programme for the privatization of state assets.