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. Last Updated: 07/27/2016

Kudrin Considers Sovereign Eurobond

Finance Minister Alexei Kudrin said Tuesday that the government would hold an international investment road show this year and consider issuing debt abroad in 2010, tapping foreign markets for the first time in a decade.

Kudrin outlined the proposals at a Finance Ministry meeting attended by Deputy Finance Minister Sergei Storchak, marking his first appearance in an official capacity since being released from jail last October.

"In this crisis period, conditions will persist that are not as favorable as they were in preceding years," Kudrin said. "We should look into the possibility of going to the external markets next year and holding a road show this year."

Konstantin Vykhovsky, the head of the ministry's debt department, told reporters that Russia could sell up to $5 billion in eurobonds with maturities of three to five years.

"The important issue here is not so much to receive funds to cover the budget deficit but to create a benchmark for corporate borrowers," he said.

Later in the day, however, Kremlin aide Arkady Dvorkovich said the actual size of the offering had not been determined.

"I wouldn't start naming specific figures just yet," Dvorkovich said when asked about an estimate by Citi that the government would be able to borrow up to $10 billion by issuing bonds. "I think that if the demand is for $10 billion and we issue only $5 billion, it means the prices will be very good."

Russia has made significant efforts to clean up its foreign debt since the 1998 ruble collapse and default and has not issued a eurobond since 2000. Russia's investment-grade rated sovereign debt stands at $28.4 billion.

Russian companies, meanwhile, have about $423 billion in foreign currency debt. Several state-controlled companies have announced that they will be floating eurobond issues, including VEB and Gazprom, which is issuing a $2 billion bond.

A government eurobond issue could be snapped up fairly quickly, despite a lack of liquidity in global markets, said Nikolai Podguzov, an analyst at Renaissance Capital.

"There has been a definite lack of sovereign Russian debt in the European bond markets, and this will generate some demand," Podguzov said.

"But," he added, "it would probably be more suitable for Russia, as a major world economy, to try to develop its own, internal credit markets."

Kudrin also said the ministry planned to issue 10 billion to 20 billion rubles in debt in late April.

Kudrin called the government's forecast that the economy would shrink by 2.2 percent this year "optimistic" and said a recovery would not come as quickly as it did after the 1998 crisis, when the economy was spurred by rising oil prices.

He said the 2010 budget would be cut from 10 trillion rubles down to 9 trillion, and the regions might face subsidy cuts and additional taxes.

The crisis will force the government to "treat each kopek more scrupulously," and federal ministries should be held to a strict yearly budget and not turn to the Finance Ministry for more funding when they receive new assignments, Kudrin said.

He said all current expenses should be inventoried and new expenses taken on selectively.    

Storchak made no comments at the meeting, his debut back at work after an extended vacation following his October release from custody, pending trial. Storchak was jailed in November 2007 after being accused of attempting to defraud the state of $43.4 million in a scheme involving Russia's decision to write off Algerian debt.

His supporters say his arrest is the result of an internal power struggle in the government involving the siloviki clans.

Kudrin has staunchly defended Storchak and kept him on as deputy even while he was in custody.

Investigative Committee head Alexander Bastrykin said in February that the state's investigation of the case was nearly complete.

An Investigative Committee spokeswoman would not comment Tuesday when asked when Storchak's trial would take place.