Russia lines up borrowing spree as US sanctions fear wanes

Russia lines up borrowing spree as US sanctions fear wanes

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Russia believes that western investors’ fears of US sanctions on its sovereign debt have eased, paving the way for a borrowing spree this year.

Demand for the country’s debt has rocketed, deputy finance minister Vladimir Kolychev said in an interview, allowing Russia to sell Rbs375bn ($5.8bn) of rouble -denominated government bonds last month on top of a record Rbs400bn of issuance in April.

The Kremlin is planning to issue about Rbs1.55tn this year, he said, up about 40 per cent from
last year’s levels. “We just stopped pushing back against. ..demand.. . as we knew that market conditions were favourable and investors had begun to work out sanctions issues,” he said.

“There’s less uncertainty and it has become more comfortable to live with those risks.” Foreign investors are hungry for Russian debt despite plans in the US Congress to stop them buying it, Mr Kolychev added.

“When [risk] first appears, you need time to work things out, calculate the possible consequences and the likelihood of this risk,” Mr Kolychev said. “While that process is ongoing it’s obviously difficult to take investment decisions before you’ve made a full evaluation. Now, in all likelihood, that process has naturally come
to a close.”

Investors’ appetite for Russian debt has held up despite the risk of further measures from the US
and EU, which began in 2014 when Moscow annexed Crimea from Ukraine. The threat of punitive measures has encouraged Russia to move further away from dollar bonds — which the US could sink by banning trades in its currency — towards domestic issuance.

Foreign holdings of Russia’s domestic debt have nearly recovered since the previous major round of US sanctions, when their share fell from 33 to 24 per cent of the total outstanding. By the end of last month, they had risen to nearly 30 per cent, according to deputy central bank governor Ksenia Yudaeva.

Last year, Russia sold euro denominated debt for the first time since 2013 and repeated the feat in early spring, further helping Moscow diversify away from the dollar. “Our logic for sovereign external debt is less about funding the budget and more about creating liquid benchmarks for other borrowers [in the Russian corporate sector],” Mr Kolychev said.

Should the US take steps against Russia’s sovereign debt through the Treasury Department’s Office of Foreign Assets Control, or Ofac, the finance ministry in Russia is prepared, he added, with its own “anti-Ofac” bureau.


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