Belarus has plenty of money to meet its obligations this year and most of next, so it is not planning any more Eurobond issues but may issue debt on the Russian capital markets, the head of Belarus’s debt agency said at a conference on April 19.
“We won’t issue any more Eurobonds this year or next year as we have enough money to cover the debt repayments in 2018 and for the first half of 2019,” Andrei Belkovets, head of the public debt department of the Ministry of Finance, told delegates at a recent Cbonds event in London. “We will return the Eurobond market no earlier than 2020.”
Belarus tapped the international debt market on February 21 with a $600mn issue of 12-year Eurobonds with 6.2% coupon following January's drop in the nation's foreign exchange reserves by $838mn, or 11.5% month-on-month, to $6.477bn.
The bond follows on from last year’s highly successful $1.4bn placement of dual-tranche US dollar-denominated Eurobonds with five-year and 10-year maturities. The yield of the five-year tranche raising $800mn was 7.125%, with the 10-year tranche raising $600mn at 7.625%. US investors were the biggest buyers, acquiring 52% of the issue, while investors from the UK and continental Europe received 30% and 17%, respectively
Belarus has been a leader amongst more exotic markets that tapped the international bond market in 2017 to raise capital. There was also an issue from Tajikistan and a $3bn Eurobond issued by Ukraine to high demand. Analysts say the market conditions for issuing new debt this year remain good, but as the US Federal Reserve has clearly started a tightening cycle the window for bond issues is starting to close slowly.
Belarus’s end of winter issue this year topped up the country’s reserves and provided enough money to fund debt redemptions this year and well into next year, the IMF said that the time of the issue in February.
The Belarusian government is becoming increasingly prudent with its debt issues and has dedicated half of its budget surplus to paying down debt. Sll the republic’s oil and gas revenue export earnings are also now earmarked to pay off debt.
“We use our surplus to pay off debt, but clearly this surplus is not enough to meet all the payments, which means the rest has to be refinanced,” Belkovets added.
However, he said that Minsk might tap the Russian market with a ruble-denominated issue this year that will be used to refinance ruble-debt to Russia, the republic’s biggest creditor.
Belarus expects to obtain a new tranche from the Russia-led Eurasian Fund for Stabilisation and Development (EFSD) by late May following a $200mn tranche allocated by the institution in October, Minsk's Deputy Finance Minister Yuri Seliverstov told journalists on March 28. In 2017, the EFSD decided to unfreeze a $2bn support package for its neighbour. Minsk agreed the deal with the EFSD in 2016 with the aim of beefing up its international reserves.
Belarus is also looking for new sources of funding and has plans to issue a so-called Panda bond in China. "The process is under way," Deputy Belarusian Finance Minister Yury Seliverstov told reporters on March 28, adding that the Belarusian financial authorities think the market situation is "favourable" now, although no timeline has been given for the bond.
In addition to the external sources of financing Minsk is hoping to further develop its domestic dollar bond market, which has already become a significant source of funding.
“Now the government is working to develop the domestic market and improving access to it for foreign investors,” says Belkovets. Other markets in the region – Russia, Kazakhstan, Armenia, Georgia and most recently Ukraine – have opened their local market for domestic government debt to international investors and seen large inflows as a result.
Belarus’s local dollar-denominated bond market has been growing and has seen coupon rates fall from 6.5% in 2016 to 4.4% last year. The government has followed through with new tax laws and other incentives for investors, including new rules that allow settling trades in foreign-based central depositories.
“We are in discussions with Clearstream to do like Armenia and Georgia and join their system. But it won’t happen quickly as we need to change a lot of legislation,” says Belkovets.