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. Last Updated: 07/27/2016

Ministry Leaves Open Future Debt Buyback

VedomostiSergei Storchak
BELGRADE, Serbia-Montenegro -- Russia is hoping for an upgrade in its credit rating after striking a recent deal with Paris Club creditors to pay off $15 billion of debt, a Finance Ministry official said on Sunday.

"I would consider this [an increase in the credit rating] to be logical," said Sergei Storchak, who heads the Finance Ministry's department for state debt.

Russia's foreign currency debt is now rated investment grade by all three leading credit risk rating agencies, Moody's, Standard & Poor's and Fitch Ratings.

Storchak said the government was considering the possibility of a further buyback of Paris Club debt although no final decision has been made.

As part of the Paris Club debt buyback deal, sealed earlier this month, all creditor countries agreed they would make no further issues of bonds, secured to Russian debt, until the end of next year.

Under the Paris Club deal Russia will buy back $15 billion of debt at par between June and August this year.

Russia in return agreed not broach the possibility of a further debt buyback for the time being.

"But this is not a strict obligation," said Storchak. "There is no decision yet. ... There are many factors, which are still unknown to us, before we can make a final decision."

One of the issues to be taken into account is oil prices, which have eased slightly in recent days although they remain at historically high levels.

Russia drew on part of a windfall from massive export receipts for its main export, crude oil, in order to finance the debt buyback.

If Russia does decide to retire more of its debt early, the sum involved would be at least $6 billion, and the terms of the buyback would also be at par, said Storchak, who ruled out the possibility of Russia obtaining a discount.

"Of course, objectively speaking, there is no such possibility [of a discount] unless something extraordinary happens, or a crisis breaks out," he said.

Russia had initially hoped to obtain a discount after Germany made a so-called Aries bond issue, secured to Russian debt, which offered investors a 10 percent discount.

"We very much wanted to receive a similar discount or something close to it. But in the year since the Aries issue, a great deal has changed and the macroeconomic and financial environment did not work in favor of our initial negotiating position," said Storchak.

Turning to Russia's fast-growing commercial debt, Storchak said he was concerned that there was no formal mechanism in place to monitor the expansion of borrowing by Russian companies.

"There is an objective need for a mechanism to monitor the growth of corporate debt," said Storchak.

He added that current levels of corporate debt were not critical, but "given the rate of borrowing of the corporate sector the situation could change very quickly."