Russia may refrain from selling Eurobonds this year for the first time since returning to international markets in 2010 as U.S. and European Union sanctions drive up borrowing costs.
“The imposed sanctions are definitely negatively affecting the general perception of our country’s economy,” Finance Minister Anton Siluanov told reporters in Moscow today. “Our borrowing costs may rise.”
Russia may skip Eurobond sales this year and reduce domestic borrowing if revenue from oil and gas sales is sufficient, he said. “We’re going to be very cautious.”
President Vladimir Putin signed legislation today completing Russia’s annexation of the Black Sea peninsula of Crimea, defying sanctions imposed on billionaires and officials the U.S. and EU linked to him. Standard & Poor’s and Fitch Ratings cut the outlook on Russia’s debt because of the risks from sanctions, while banks including Goldman Sachs Group Inc and Bank of America Corp. reduced their forecasts for Russia’s economy this year.
Russia, which planned to borrow as much as $7 billion on international markets this year, was considering one or two debt sales in dollars and euros, Siluanov said at an investor meeting Feb. 21 in Hong Kong.
The yield on Russia’s dollar-denominated Eurobond due in 2030 rose after Siluanov’s comments today, pushing the yield up 22 basis points, or 0.22 percentage point, to 5.23 percent as of 8:06 p.m. in Moscow. That’s the highest since October 2011, according to data compiled by Bloomberg.
Russia had a budget surplus of 30.5 billion rubles ($842 million), or 0.3 percent of gross domestic product, in the first two months of the year, according to Finance Ministry data. The budget, planned with a deficit of 0.5 percent, may be balanced this year after the ruble’s slide, Siluanov said in Hong Kong.
The ruble has tumbled 9.3 percent against the dollar this year, the worst among 24 emerging markets tracked by Bloomberg after Argentina’s peso. That boosts budget revenue because Russia’s dollar-denominated revenues from commodity exports are greater when converted back to the local currency.
“We’ll monitor oil and gas revenue,” Siluanov said. “If the situation will be the same as it is now, then we may skip foreign borrowing and reduce our domestic debt plan.”
Even before Russia’s worst standoff with the West since the fall of the Soviet Union, Russian output was expanding at the slowest pace since a 2009 recession. Russia’s economy is showing “clear signs of a crisis,” Deputy Economy Minister Sergei Belyakov said March 17 at a conference in Moscow.
Fitch cut the outlook on Russia’s sovereign debt to negative today, following a similar move by S&P yesterday. Both rate Russia at BBB, the second-lowest investment grade.
Still, Russia’s risk of default in the next year is only 0.07 percent, on par with AAA-rated Switzerland, according to data compiled by Bloomberg.
“Since U.S. and EU banks and investors may well be reluctant to lend to Russia under the current circumstances, the economy may slow further and the private sector may require official support,” Fitch said in a statement. The company cut its forecast for Russian growth to less than 1 percent.
Russia has to redeem about 324 billion rubles of debt this year, the Finance Ministry said in an e-mailed response to questions March 18. Some of that will probably need to be raised on the local bond market, according to Siluanov.
“Most likely, we’ll vary the terms of the securities’ duration and, of course, the volumes,” he said.
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