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. Last Updated: 07/27/2016

Kudrin, Ulyukayev Take Eurobond Talk to London

LONDON — Kremlin representatives met investors on Thursday in a bid to persuade them that the oil-rich country is not as risky as currently perceived, but they declined to discuss the parameters of a planned 2010 eurobond issue, its first in a decade. Finance Minister Alexei Kudrin and Central Bank's first deputy chairman Alexei Ulyukayev briefed about 50 market players in London on economic prospects and budget policies.

Russia has factored in up to $18 billion of external borrowing in next year's budget as it braces for at least three more years of deficits in the wake of a recession.

But with key export oil trading nearly $20 higher than the $58 a barrel projected in the budget, actual borrowing needs could be much lower, officials say.

"If the price of oil will be higher, we can reduce borrowing and the spending from the Reserve Fund," Kudrin told reporters after the meeting with investors.

"At any price above $58 we can talk about a reduction," he added, but declined to quantify how much borrowing could be cut.

Russia is also still in talks with the World Bank about a possible loan of up to $4 billion which — if agreed — could further reduce its need for eurobonds.

Officials say Russia could be ready for the sovereign issue by the end of February, but the timing of the actual placement will depend on the market, as will the maturity and the currencies — which could include euros as well as dollars.

Decisions on these parameters are not expected to be taken until next year, and lead managers are also yet to be chosen.

"They were very reluctant to give any specifics [on the issue]. The only specific was that there are no specifics," said Ralph Sueppel, portfolio manager at Blue Crest Capital Management, who attended Russia's presentation.

"I think it [the issue] will be received well," he added, describing investors' moods at the meeting as "constructive."

Russia's benchmark 2030 eurobond currently yields 5.73 percent, having fallen back to the levels seen in summer 2008 before the crisis from peaks of nearly 13 percent set at the height of the turmoil in October 2008.

The EMBI Plus index shows Russia yielding 239 basis points over U.S. Treasuries, broadly on a par with Brazil and Turkey.

But Russia is keen to see the yields reduced further — both for the sovereign and for its companies who are starting to return to domestic and external debt markets.

"We think that currently the assessment of risk in Russia is elevated so this series conversation … is important," a source in the Russian delegation said ahead of the meeting, adding that the event would allow the sovereign to assess investors' views on risk premium — and thus yields.

But Sueppel said there was no concrete discussion on yields.

In the corporate sector, Russia's second biggest oil producer LUKoil last month placed 5-year debt at 6.5 percent yield and 10-year debt at 7.375 percent in the first benchmark eurobond issue by a privately-held firm since the credit markets dried up at the onset of the financial crisis.