Russia Pitches Debt in London

Finance Minister Alexei Kudrin led a government delegation Thursday to meet investors in London for a “non-deal road show” to discuss a planned issue of $17.8 billion in sovereign eurobonds, but the presentation left investors wanting for specifics.

The eurobond issue would be Russia’s first since the 1998 default and is key to the government’s plan to narrow its budget deficit next year. But with oil prices well above forecasts made for the budget, the Finance Ministry has been downplaying the significance — and the size — of the issue.

“We did not present a concept of a specific securities issue, no decisions on the maturity period and the currency were made,” Dmitry Pankin, a deputy finance minister, told reporters. The government, he said, will make specific decisions next year at the earliest, and “not even at the beginning of the year.”

Last month, Pankin said Russia could issue up to $17.8 billion in eurobonds, but Tuesday he said the figure could be significantly reduced if oil prices stay high.

“With any price above $58 per barrel, you can start talking about cutting back on borrowing and the use of funds,” Kudrin said Thursday, apparently referring to the Reserve Fund and National Welfare Fund that collect windfall oil revenue.

The budget for 2009 is based on an average price of $58 per barrel for Urals crude, Russia’s main export blend.

According to Central Bank data, Urals averaged $56.3 per barrel for the first nine months of the year, up from $50.5 in the first half of the year. Spot prices for Urals were above $77 on Thursday.

After concerns earlier this year that the budget shortfall could reach as high as 10 percent of gross domestic product amid major spending to prop up banks and industry, the government has signaled that it is far less worried about the deficit spending.

The Finance Ministry is now planning to revise this year’s budget to re-

allocate funds no longer needed to shore up banks for general crisis spending (Story, Page 7).

This year’s budget deficit is expected to be between 7.5 percent and 7.7 percent, after some cost cutbacks allowed the government to cut the shortfall by 0.5 percentage points, Kudrin told lawmakers Oct. 21.

The budget deficits are expected to fall to 6.8 percent in 2010 and gradually to 4 percent in 2011, he said.

Kudrin said demand for the eurobonds would show what key buyers really think of the plans by the Russian government. “We will know the reaction of the investors when we place the bonds, the attention and the demand will give the answer.”

Alexei Ulyukayev, a Central Bank first deputy chairman who also attended the meeting, said investors asked him about the instruments used to support the banking sector and the macroeconomic parameters that the Central Bank uses to form its policies.

When asked about investors’ concerns, Ulyukayev said “they had no specific worries.”

Investors, however, countered that they heard very few details — to worry them or otherwise.

“They were very reluctant to give any specifics [on the eurobond issue]. The only specific was that there are no specifics,” Ralph Sueppel, portfolio manager at BlueCrest Capital Management, who attended the discussions, told Reuters.

“I think [the issue] will be received well,” he said.

Another unnamed conference participant told Interfax that he did not hear “anything new” from the officials.

“Russia’s goal in re-entering the sovereign bonds market isn’t primarily attracting cash, this is done to open more opportunities for the economy and strengthen relations with investors,” said Denis Poryvai, a fixed-income analyst at UralSib.

“Russia is unlikely to place eurobonds before February, and the initial issue will not exceed $2 billion to $4 billion.”

He said the demand for the bonds would score high, as investors have a clear understanding that Russia is not going to be an aggressive borrower and high oil prices will give a positive image of the Russian economy to investors.