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. Last Updated: 07/27/2016

State May Put Off Bond In Favor of Paying Debt

Finance Minister Alexei Kudrin said Thursday that the government may shelve the idea of issuing a Eurobond this year in favor of paying off debt early and meeting budget payments from its own swelling coffers.

But the government is also confident it can raise money on a Eurobond if it chooses because investor perception of Russia's creditworthiness has improved in leaps and bounds since the financial crisis of 1998.

"Russia has a choice between issuing Eurobonds and using a part of the financial reserve to meet budget payments," Kudrin told a conference. "The reserve could also be used to pay back our debt early."

Kudrin said foreign debt had fallen to $128.3 billion by the end of the first quarter of 2002, down from $130.1 billion on Jan. 1. He added that the country's financial reserve, budget money put away to meet debt payments, would hit 198.3 billion rubles ($6.34 billion) at the start of 2003 from 47.6 billion rubles at the end of March.

At the start of the year, the financial reserve was 88.8 billion rubles.

The world's second-largest oil producer has to redeem $14.2 billion of foreign debt this year and $17 billion in 2003.

A Finance Ministry official said tapping international markets with a Eurobond was still an option.

"If market conditions are favorable, we are planning a [Eurobond] issue in September or October worth between $1 billion and $2 billion," Denis Mikhailov, deputy head of the Finance Ministry's foreign debt department, told a separate bond conference.

Russian sovereign bonds recently have been among the top performers in emerging debt markets, so the shelving of a Eurobond move could potentially deprive the market of an important benchmark.

Russia's last Eurobond issue was in June 1998, when the country restructured some of its short-term local debt two months before the financial crisis that sent investors fleeing.

Moscow has stayed away from international debt markets since then.

But two years of reform and prudent fiscal policy under President Vladimir Putin have led to improved investor perception of the country's creditworthiness. For the first time this year Russia has budgeted a surplus of 1.63 percent of gross domestic product.

High world prices for oil, Russia's main export, have also helped fill the treasury's pockets.

In early May, international rating agency Fitch Ratings upgraded Russia's long-term foreign currency and Eurobond rating to BB- from B+, also changing its outlook to positive.

The agency said it had become more confident that foreign debt servicing in 2003 did not represent a "significant" risk any longer and could be achieved even if oil prices dropped sharply.