Pressure is mounting on Russia to break the vow of abstinence on selling eurobonds it has maintained since the US and Europe slapped sanctions on some of its biggest companies.
In the three weeks since the finance ministry last said there’s no point to go abroad for cash while penalties are still in place, the ruble tumbled to a record amid an oil plunge and rising yields at home made borrowing targets more elusive. The government said it invited banks from nine countries to submit proposals to broker its return to foreign capital markets, its first mandate since last issuing international bonds in September 2013, Bloomberg reported.
“Russia probably needs to access international markets to raise funds to plug its deficit this year,” Greg Saichin, the chief investment officer for emerging-market fixed-income at Allianz Global Investors Europe GmbH, said by e-mail Friday. “The problem is sanctions. They are still on, but we presume that they may fall away completely at best or eased at worst.”
Desperate for Money
For now, a funding crunch and the widest budget shortfall in five years may loom larger for Russia as politics fade into the background. A sovereign wealth fund used to finance the gap is dwindling after the price of crude, the nation’s biggest export earner, fell to less than $30 a barrel for the first time since 2003 last month. Meanwhile, inflation pressures have driven up yields on local government debt, causing auctions to fall below the weekly average to attain quarterly targets.
“The government isn’t desperate, they just need the money,” Igor Yelnik, a partner at ADG Capital Management LLP in London, who manages about $200 million, said. “And considering the complicated economic situation, they need more money than usual.”
Finance Minister Anton Siluanov sent requests for proposals to 20 foreign banks, including the Bank of China, Goldman Sachs Group Inc., Citigroup Inc. and Barclays Plc, as well as three local lenders, Sberbank PJSC, VTB Group and Gazprombank JSC, according to a statement Feb. 5.
Issuance Slump
The last time Russia tapped international debt markets was in September 2013 to raise $6.8 billion. That was six months before President Vladimir Putin’s annexation of Crimea triggered sanctions from the US and European Union that virtually closed the Eurobond market to Russian borrowers.
While Russia itself isn’t prohibited by sanctions from sovereign fundraising, the penalties combined with the collapse of oil prices are stoking the nation’s borrowing costs. Companies sold just $4 billion of eurobonds in 2015, down from the 2013 record when they raised $42 billion of foreign debt sales.
“If Russia believes the easing of sanctions is realistic, it might be better to sell after,” said Michael Ganske, who oversees $4.5 billion of debt and currencies as head of emerging markets at Rogge Global Partners in London. “If they will be lifted, even gradually, this will be clearly positive for Russian asset prices.”
Withdraws License
Russia’s Central Bank has withdrawn the licenses from two of the country’s banks as part of a larger effort to consolidate the banking sector, Reuters reported.
The central bank announced on Monday that it has revoked Interkommerzbank’s license. It said there was a significant imbalance between the assets and liabilities of the country’s 67th largest bank.
It also withdrew the license of the country’s 186th largest bank, Alta Bank.
The closures are part of the central bank’s campaign to consolidate the banking sector, currently characterized by a large number of small banks. The movement is controversial; it creates greater long-term stability, but there is uncertainty about which bank is next.
Interkommerzbank and Alta Bank clients will be able to recover up to 1.4 million rubles ($18,207) of their assets.
In January, though, it revoked the license of Vneshprombank, one of Russia’s top 50 banks by assets that had around 70 billion rubles ($915 million) in retail deposits.
Over the last three years, the state has spent around 600 billion rubles to compensate depositors of defunct banks.
