Russian Government May Issue Bonds Exchangeable for Shares

Russia’s government may issue sovereign bonds exchangeable for shares of state-controlled companies to help the country’s asset-sale program, said Arkady Dvorkovich, chief economy aide to President Dmitry Medvedev.

“I don’t rule out that this recommendation will be put into practice,” Dvorkovich told reporters in Moscow today. “However, I do not think the instrument will be used en masse, possibly in some cases, but we need to work out all the details and understand what nuances and stumbling blocks there may be.”

Russia aims to raise more than 1 trillion rubles ($33 billion) from the sale of state assets between 2012 and 2014, to finance plans to develop its industry and infrastructure. Stephen Schwarzman, chairman of Blackstone Group LP, told a meeting of bankers chaired by Medvedev in Moscow Oct. 28 that bonds exchangeable into stocks of privatized companies may help shield investors apprehensive of losing money during sales.

The Economy Ministry was considering proposals from investment banks to sell equity-linked debt in OAO Sberbank, VTB Group, OAO Rosneft, OAO RusHydro and Federal Grid Co., Kommersant reported last year, citing unidentified government officials.

Schwarzman, head of the world’s largest private-equity firm, joined JPMorgan Chase & Co.’s Jamie Dimon and Deutsche Bank AG’s Josef Ackermann in Moscow as members of an advisory group consulting the Kremlin on how to turn the city into a global financial center.

Medvedev, who may become prime minister next year, wants to see Moscow competing with London, New York and Hong Kong for capital and financial services. He has also pledged to cut the state role in the economy.

To contact the reporter on this story: Lyubov Pronina in Moscow at lpronina@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net