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. Last Updated: 07/27/2016

MinFin To Start Sale of Long-Term Securities

The Finance Ministry said Thursday it would give institutional investors exactly what they've been waiting for — a long-term place to park their excess rubles that generates a decent return.

Deputy Finance Minster Bella Zlatkis said that by the end of August the ministry will issue long-term securities of up to 10 years with higher-than-inflation coupons for insurance companies, pension funds, mutual funds, banks and other institutional investors.

"After discussions with insurers we have concluded that the new product would be likely to have a tenor of five to six or maybe 10 years," Reuters quoted Zlatkis as saying. "It will be what investors tell us they want. We have no preference," she said.

The new paper, available for Russian entities only, would not be traded on the open market, but a system to allow inter-company trading in the notes would be worked out, she said. The securities would be hedged against risks, including inflation, and have a positive interest rate, though the exact numbers have yet to be agreed upon, she said.

The maturity date is not crucial because the ministry would be able to buy back the securities at prices agreed with investors, she added.

The government resolution needed to seal the deal is expected within days, she said.

When launched, the securities will be the first issued with a maturity date longer than three years since Aug. 17, 1998, when the government defaulted on $45 billion worth of GKO short-term state bonds and OFZ long-term state bonds.

Zlatkis said the volume of the first issue would be in the 6 billion-ruble range and later rise to 40 billion rubles ($1.37 billion).

Analysts called the new product a godsend for institutional investors and a sign of economic recovery.

"The fact that vehicles of long-term investment and long money are being restored is one more sign of the rehabilitation of the Russian economy," said Katya Malopheeva, the head of domestic reaserch at Renaissance Capital. Even so, it is still too early to tell if 10-year securities will be successful, she added.

"What the Finance Ministry is offering is exactly what institutional investors want — long paper, big volume and periodic coupon payment," said Alexander Ovchinnikov, a fixed income analyst at Troika Dialog.

Many of Russia's institutional investors are sitting on a large amount of cash reserves and have appealed to the ministry and Central Bank to create such long-term paper.

Many of these companies, however, have learned to work actively on the open market and no longer need it, said Ovchinnikov.

Including the new paper, Zlatkis also said the Finance Ministry intends to borrow up to 130 billion rubles ($4.4 billion) on the domestic market next year.

The sum of 130 billion rubles will exceed the principal debt due for repayment next year, but it is 20 billion to 30 billion short of the amount necessary to cover interest, Prime-Tass reported.