Belarus was supposed to join the Clearstream international system of settlements and payments this summer, in a move that could have transformed its domestic debt market by making locally traded Belarusian ruble bonds directly available to traders around the world, but its accession has been delayed, says Belarusian Finance Minister Maksim Yermolovich.
“It's our hope that we can open the local market to foreign investors and provide access to our local bond market, especially Belarusian-denominated bonds. But we still have some problems with the linking of our depository system to the international system,” Yermolovich told bne IntelliNews in an interview on June 13.
Last year Clearstream launched a “Clearstream-lite” programme to hook the domestic capital markets of Georgia, Armenia, Ukraine and Belarus up to its international system that allows traders to buy local government and corporate bonds denominated in the local currency from the comfort of their dealing desks in the international capitals.
When Russia was hooked up to the Clearstream system in 2012 it caused a revolution in the domestic capital markets as foreign investors flooded in to snap up the high-yielding bonds. Today foreign investors hold about a third of Russia’s outstanding Ministry of Finance OFZ treasury bills, or $20bn, which has become a significant source of funding for the Russian government.
Georgia was hooked up first in 2018, followed by Armenia. Ukraine went on line in May this year and has seen foreign participation soar as foreign investors bought up around $1bn of local UAH-denominated t-bills and already account for about 6% of the total bonds outstanding from nothing at the start of the year.
Belarus was supposed to come online at about the same time as Ukraine, but for reasons that remain unclear to the government its accession has been delayed.
“We are in negotiation with Clearstream. We have prepared a road map of financial market reforms and how to change the legislation to reach the high standard of the international market to have the same as Ukraine and Georgia,” says Yermolovich. “We didn't receive a response from Clearstream. But we hope to reach agreement soon.”
Clearstream didn't specify what was causing the delay, but reiterated that it was committed to hooking Belarus up to the system and that talks are ongoing, with more meetings between the two sides slated for this week.
"Belarus is definitely a market we are interested in to further complement our CIS/CEE offering. Clearstream maintains a continued dialogue with the Belarus capital market stakeholders (like with others in the region) on supporting initiatives to increase the international attractiveness of local bond markets," a Clearstream spokesperson told bne IntelliNews.
Yermolovich was in London to meet with investors and lay the groundwork for a return to the Eurobond market with an issue slated for 2020. The minister says that investors are enthusiastic about the potential Eurobond issue, but are also keen buying the locally traded debt.
Yermolovich also had talks with Clearstream’s rival payments system Euroclear on a tie up. “I tried to explain how important it was to have such a linkage and connect Belarus to the global finance system,” Yermolovich told bne IntelliNews. “We are ready to be more collaborative and move faster to bring the legislation into line with the international norms, but the decision is not on our side. But I think in the near future we will reach an agreement on how to move forward.”
Belarus, like the other countries in the region, is on a drive to deepen its domestic capital market and expand the pool of potential investors. For their part the yield-hungry international investors are keen on the high-yield local currency bonds, especially since the US Federal Reserve bank made it clear that it would halt its monetary policy tightening earlier this year making investors “risk on” again.
“For business we are very attractive for the foreign investors,” says Yermolovich. “The size of [the bond] business and the size of potential operations on the market is more than $20bn as currently we already have some $5bn as foreign investment. It's already a big business.”
Yermolovich is clearly frustrated by the slow pace of progress and the delay in hooking up to the Clearstream system, which is rapidly becoming a standard item in the toolbox of finance ministries across the region.
“We see a huge business perspective. We are ready to change the legislation. We are ready to move fast in this direction. We don't want intermediaries in this business. We want to be connected directly,” Yermolovich said.