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. Last Updated: 07/27/2016

Domestic Capital Flexes MinFin Muscle

Russia said Wednesday it planned to issue a further $1.5 billion of existing tranches of its dollar-denominated MinFin bonds, a sign of growing confidence in its domestic capital markets.


The securities will be issued to Russian companies owed hard currency by the government and will carry the same terms as the four outstanding tranches of MinFin bonds, said Sergei Mariyev, deputy head of the Finance Ministry's hard currency department.


President Boris Yeltsin signed a decree authorizing the issue, his press service said.


Prices on MinFins, which are actively traded in Moscow and abroad, fell on the news, but analysts welcomed the issue and said the bonds were likely to be of longer maturities. They added, however, that many details were unclear.


"In the sense that this country is making progress in the direction of getting things in order, trying to regain access to international markets, I think it is to be seen as good news," said ABN Amro fixed income analyst Atanas Christev in Amsterdam.


MinFins were originally issued to firms whose accounts in former Soviet foreign trade bank Vneshekonombank were frozen in a liquidity crisis in 1992.


About $8 billion of the 3-percent bonds were issued in five tranches the following year. The first tranche has already been repaid, and the second matures May 14 this year.


Three other tranches mature in 1999, 2003 and 2008, with some $7 billion outstanding. Yields to maturity range from 13 percent to 21 percent.


Russia also plans to issue about $1 billion of Eurobonds, but analysts said the MinFins would not affect this.


In another boost to the domestic market, the Finance Ministry said it would make its first issue of two-year bonds Feb. 7. Previous issues have not been longer than 18 months.


Yeltsin's decree said Russian state hard currency debt owed to companies or other organizations, including former Soviet debt, would be converted into bonds.


One London-based trader said the origin of the bonds could be so-called clearing accounts held by former Soviet companies.


The Soviet Union and its former trading partners, such as India, often used a clearing system in which each country's exporters were paid from special clearing accounts, thus avoiding the need for shaky currencies to move across borders.


However, the trader said it was still unclear whether this would be a "tap issue" of debt not fully allocated or a completely new issue, either of different maturities from the existing longer tranches or not fungible with them.


"I think it is quite plausible that we will see this issue this year, and $1.5 billion is about right. It will have somewhat of a depressive effect on the market at first," he said.


The bonds, probably to be issued to the original creditors, would take several months to be sold into the market, he said.


Christev said he believed the paper would have a maturity at least as long as the fourth tranche, which will be repaid in 2003, or even as long as the fifth, maturing in 2008.