The government will slash external debt plans and may not tap the market at all in 2011-12 after pushing through its first eurobond in a decade before Greek woes spiked risk aversion, Deputy Finance Minister Dmitry Pankin said.
Russia raised $5.5 billion in its first eurobond in over a decade last month, with the oversubscribed issue showing how far it has come since the 1998 domestic debt default.
As well as plugging a post-recession budget deficit, the placement was intended to improve borrowing conditions for Russian corporates.
But investor risk appetite took a serious knock from the Greek debt crisis, and yields across the board — including for new issues — surged.
"We just caught the last wagon of the train because one week after our bond issuance it could be much more difficult to get such results and as we see spreads are rising," Pankin said in an interview.
"We pushed the benchmark 20-30 basis points down. Maybe our expectation was that we could have better results, but the market was not as beautiful as it was at least one week before."
Russia had originally planned to borrow up to $17.8 billion abroad this year and similar amounts in coming years. But officials have since said all further borrowing this year will be done on the domestic market.
"I think our main strategy is to borrow in the internal market, mainly using ruble instruments," Pankin said, adding that this strategy would also apply in years ahead.
"Our plan is that we diminish our external borrowing from up to $20 [billion] to up to $7.5 billion … for 2011 and 2012. But it's only an indication that we can borrow. Now it's difficult to say exactly whether we will borrow or not."
Total borrowing needs for this year though are unlikely to be less than the expected 1.5 trillion rubles ($50 billion) despite higher oil prices.
"We are preparing a revised version of the budget projections, but I think it would be rather difficult for this year to get a budget deficit substantially less than 6.8 percent," Pankin said, citing ruble appreciation and "much bigger demand from other ministries for additional spending."
Yields on the five-year Eurobond, sold with a coupon of 3.625 percent, have risen above 4 percent. The 10-year with a 5 percent coupon now yields 5.3 percent.
A Message from The Moscow Times:
Dear readers,
We are facing unprecedented challenges. Russia's Prosecutor General's Office has designated The Moscow Times as an "undesirable" organization, criminalizing our work and putting our staff at risk of prosecution. This follows our earlier unjust labeling as a "foreign agent."
These actions are direct attempts to silence independent journalism in Russia. The authorities claim our work "discredits the decisions of the Russian leadership." We see things differently: we strive to provide accurate, unbiased reporting on Russia.
We, the journalists of The Moscow Times, refuse to be silenced. But to continue our work, we need your help.
Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just $2. It's quick to set up, and every contribution makes a significant impact.
By supporting The Moscow Times, you're defending open, independent journalism in the face of repression. Thank you for standing with us.
Remind me later.