Despite Western governments warning investors that buying Russia's high yield Euro-denominated bonds may be a breach of sanctions Russia raied twice as much money as initially planned
Russian government officials hinted of more bonds in the offering despite sanctions that may hinder demand from Europe, its main market.
On Tuesday, the Finance Ministry said that to better maintain its budget for the next three years it would borrow up to $3 billion a year over the same period. That means high yield Russian bonds for a market desperate for debt that actually pays the lender for lending in the first place.
The Ministry said it wants to keep the volume of external borrowing at a steady pace and in line with 2016 borrowing. Earlier today, Reuters reported that the Finance Ministry had proposed up to a five-fold increase in borrowing in the domestic market. The $3 billion figure is for dollar or euro-denominated debt.
Russia launched its first sovereign debt offering since the Ukraine crisis on May 23 in a move that showed the world that western investors were still very much interested in what Russia had to offer.
Russia last tapped international markets for capital back in 2013, raising $7 billion. It stopped soon after when Russia was placed under sectoral sanctions by the U.S. and E.U. in 2014 following the annexation of Crimea, a peninsula in southeastern Ukraine. The move led to ethnic violence in eastern Ukraine between Russian-government backed ethnic Russians and the Ukrainian military. Sanctions have been ongoing since.
In May, VTB Capital place the recent $3 billion bond to Westerners even after Washington and Brussels warned some 22 investment banks that participating in the bond deal could violate sanctions and lead to millions in legal fees.
Three billion dollars won’t break Russia’s bank. It could probably get that much from the locals, albeit at a much higher rate. Selling to debt to foreigners is more a matter of testing Western waters of investor sentiment. The May issue was completely oversubscribed, meaning demand was so hot that yields declined and Russia brought in nearly double what it initially sought.
Russia’s economy remains in the doldrums, however. Most of that is due to oil prices. The budget is based on oil averaging out the year at $50. It’s more like $43-$45 on average so far this year.
Inflation remains stubborn as well, which makes it a bit harder for the Russian central bank to keep lowering interest rates.
Russia’s Ministry of Economic Development said Tuesday its baseline projection for inflation was still 6.5% in 2016, but that an outlook revision is planned next month.