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. Last Updated: 07/27/2016

State to Restrict Eurobond Sales to $2Bln in 1998




The Finance Ministry has said it will sell no more than $2 billion in Eurobonds by year's end, but analysts eying $24 billion in debt due later this year question whether that promise can be kept.


"What is perplexing is how they will on that basis meet their financing targets," said Philip Poole, head of Eastern European research at ING Barings in London. "They need to borrow more than that and its not clear how they are going to do that."


Just how uncertain the government's borrowing plans are was underscored Monday when it said it wouldn't sell treasury bonds at its regular auction because borrowing cost are too high. Yields on one-year T-bills have climbed nearly 20 percentage points higher than the Central Bank's refinancing rate, which currently stands at 60 percent.


The ministry said a $22.6 billion loan package pledged by the International Monetary Fund and other international lenders and its swap of $4.4 billion in T-bills for longer dollar-denominated bonds would allow it to reduce borrowing this year.


The government sold $2.5 billion in Eurobonds without warning during the worst of the government's cash crunch, flooding the market with new securities and driving down prices. Russia then poured more dollar-denominated debt into the market when it sold and swapped more than $6 billion in new bonds in July, bringing the total amount of new debt to more than $9 billion.


With Monday's announcement, Russia is trying to convince investors it won't seek to sell too much more debt to an already saturated market. The yield on Russia's 30-year Eurobond recently fell 4 basis points to 15.523 percent. Still, the bond's yield has risen 277 basis points since its initial yield of 12.75 percent.


"Russian dollar debt is still fairly weak," said Poole. "The supply imbalance is going to be with us for a while yet, which makes it difficult for them to come out with substantial new issues."


"The government will continue to monitor market conditions closely to allow it to take advantage of funding opportunities in the event that market conditions allow for cheaper financing," the ministry said in a statement.


Investors were encouraged by the ministry's announcement, but said they want more details on how the government plans to pay off maturing debt.


"It has to be a part of a bigger package -- how will they fund $4 billion to $4.5 billion" in internal debt, said Keith Swabey, who oversees $500 million in emerging market bonds at Fleming Investment Management in London. The bonds are "a part, but only a part, of the jigsaw, and until that is solved, the market will remain nervous."