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. Last Updated: 07/27/2016

Foreigners'T-Bill Sale Nets $25M

The first primary auction in government securities to include foreign participants was held Wednesday, a month after Russia's Central Bank decided to ease restrictions on trade by nonresidents in the lucrative T-bill market, the Finance Ministry said.


Nonresidents invested a total of 120 billion rubles ($25.5 million) in the Russian government securities, known commonly by their acronym, GKOs (short-term bonds) and OFZs (federal loan bonds), said Vitaly Sotnikov, a dealer with investment company Rinako-Plus.


But the much-awaited foreign participation had no significant effect on yields, Sotnikov said.


"One-hundred-twenty billion rubles is such a small part of the overall volume of the securities market," he said.


A number of Russian and foreign brokerage dealers said they did not share the Central Bank's optimism that foreign investors would rush into the market even under current limitations.


Richard Deitz, head of the fixed income trading at Renaissance Capital, said he was skeptical that foreigners would be attracted by the Russian government's offer because technical procedures for nonresidents were still unclear.


"They [foreigners] say it's not a fair deal," he said.


Under the rules, no more than 10 percent of each new issue may be sold to foreigners. The quota for nonresidents in the first quarter of 1996 was fixed at $500 million, Sotnikov said.


The Central Bank also has said it will cap yields for foreigners at only slightly above comparable levels in Western markets. Bank officials were not available for comment Wednesday, but dealers said yields would be limited to 10-12 percent annually for short-term bonds.


For Russian buyers, annualized yields of the popular three-month GKOs fluctuate between 80 and 140 percent and have become a burden on the state budget. Federal loan bonds (OFZs)offer a less profitable return rate of less than 80 percent.


Mikhail Belkin, a dealer with AIOC Capital, said the Central Bank and Finance Ministry are trying to extend the duration of the state debt while lowering significantly the yield of GKOs.


Belkin said the Central Bank's decision to limit the nonresidents to 10 percent of the T-bill issue was a cautious policy that heeded the lessons of Mexico's recent financial crisis.


Eurobank (Banque Commerciale pour l'Europe du Nord) in Paris, a former Soviet foreign trade bank, was officially approved by the Central Bank as the first designated nonresident bank to offer services to foreign investors on the Russian T-bill market, Reuters reported.