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. Last Updated: 07/27/2016

Indices Jump on Eurobond Issue News

LONDON -- News that Moscow will launch its first Eurobond sooner than expected sent Russia's foreign currency debt soaring on secondary markets Friday, though syndicate managers expressed skepticism about the timing.


Some said it was too early for such an issue given uncertainty in advance of Russian presidential elections in June. The size, said to be $500 million, would also be an obstacle, they said.


But for debt traders, the news, when combined with an announcement that the International Monetary Fund was releasing the final installment of a $6.3 billion loan accord from last year, was another signal of Russia's allure.


"The announcement of the Eurobond was taken as a further sign Russia is committed to servicing its debt," said Daniel McGovern, senior fixed income strategist with Merill Lynch.


Both Vneshekonombank debt -- the debt taken on by Moscow after the collapse of the Soviet Union on which a rescheduling deal is expected to be finalized later this year -- and Russia's own MinFin bonds were up sharply in Friday morning trading.


Vneshekonombank dollar paper at one stage in the morning was bid nearly one point higher at 34 3/4 cents on the dollar.


A senior Russian Finance Ministry official said Friday the government would shortly announce the underwriters for its planned Eurobond, but it was too soon to disclose details.


Friday's London Financial Times newspaper said Russia would mandate J.P. Morgan Securities and SBC Warburg to lead the issue. Both banks declined to comment.


"They seem to have made their decision but I am amazed that it is so soon without giving us more time," a new-issues trader at a U.S. bank said. "It is complete and utter wrong timing."


A syndicate manager at another U.S. bank said, "This is going to be an incredibly challenging transaction. There are so many unknowns and the whole country could turn upside down."


Primary market players said there was demand for high-yielding paper, a bond offering a high interest rate, but that Russia lacked the transparency of other emerging borrowers such as Mexico and Argentina.


Dealers said foremost in the minds of investors would be the need to balance the issue's potential rating and launch spread against the prevailing political backdrop, including the strong showing by Communists in December's parliamentary elections and the subsequent dismissal of some key economic reformers from the government.


"Although economic fundamentals are currently good, politics is the overshadowing factor," said one syndicate official.


In mid-January, President Boris Yeltsin's top economic aide Alexander Livshits said the country might launch the first tranche, "probably a small one," of its long-expected Eurobond issue before the presidential election June 16.


Livshits said the ministry planned to issue half-year, one-year and two-year Eurobonds.


Separately, chief Russian debt negotiator Oleg Davydov said it planned to issue $1.0 billion of Eurobonds this year.


The proposed Eurobond, an internationally traded bond, would be Russia's first offering in the international debt market since the 1917 Revolution.


Bankers say a Russian return to international capital markets was one of the conditions the International Monetary Fund was setting for a new medium-term loan under its extended financing facility, expected to be around $9 billion.