Russia moves ahead with Eurobond plans despite escalating tension with West

Russia moves ahead with Eurobond plans despite escalating tension with West
Russia's MinFin place $7bn of new Eurobonds this month despite the spy poisoning scandal. / kremlin.ru
By bne IntelliNews March 16, 2018

Russia's Ministry of Finance is moving ahead with plans to place a total of $7bn of new Eurobonds  after a successful placement of a Gazprom €750mn Eurobond on March 15 issued at the same time as UK Prime Minister Therasa may announced punishments imposed on Russia for the poisoning of a former double agent on British soil.

The guidance on the yields of the first $3bn of new sovereign bonds maturing in 2029 is a low 4.75%, possible due to anticipated high demand by investors, despite the sharp deterioration in relations with the West, Reuters said on March 15 citing unnamed market sources.

The Ministry will issue the same $3bn of new Eurobonds it has raised each year for the last two years – which is less than the $7bn it used to issue every year before the annexation of the Crimea peninsular in 2014 – and the book is reportedly going to be closed on Friday March 16. The ministry also previously announced an exchange of $4bn of Russia 2030 bonds for an issue maturing in 2047 and yielding 5.5%, which represents a sharp increase in the total volume of bonds Russia is planning to issue as it hopes to capitalise on the window of demand for Russian bonds that is prevailing in the capital markets at least at the moment.

Having said that Russia will still have to pay for the deterioration in relations with the west. Analysts surveyed by Reuters note that the new $3bn Eurobond issue is priced at a premium to the secondary market, attributed to the difficult geopolitical background.

The premium is also attributed by market sources to the goal of helping Russian rich to repatriate the capital amid tightening Western sanctions.

Russia's natural gas giant Gazprom placed €750mn worth of eight-years Eurobonds in London with demand exceeding supply 3-fold on March 15, the same day as May’s speech to parliament announcing measures the UK would take against Russia.

On March 13 Standard & Poor's analyst Karen Vartapetov told Reuters that the upcoming placement of Russian sovereign Eurobonds will not affect country's creditworthiness as the sovereign debt remains low.

In February S&P has brought Russia's rating back to investment-grade 'BBB-', leaving Moody's the only "big three" agency keep Russia's sovereign assessment in the junk speculative category.

"Considering S&P's upgrade of Russia's rating to investment-grade, as well as the continued rise in US Treasury yields, we think the Finance Ministry will prefer not to put the placement off and may carry it out as soon as March," Sberbank CIB commented on February 27. 

"A insufficient increase in debt will not lead to deteriorating credit quality," Vartapetov commented on the upcoming Eurobond placement. Current sovereign debt less the liquid assets of the government would not exceed 10% of GDP, he estimated.

At the same time the S&P analyst does not believe that the placement would help in the en masse repatriation of capital given the size of the issue.

In December President Vladimir Putin supported the idea of issuing special foreign-currency bonds that would help Russia's richest safely and anonymously repatriate capital to shield it from a possible tightening of US sanctions.

Finance Minister Anton Siluanov indirectly contradicted Putin on December 21 saying that those wishing to return capital to Russia can buy into a $3bn Eurobond issue already budgeted by the ministry for 2018.

 

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