Russia will stay out of international bond markets this year and trim local-currency debt sales after borrowing costs surged, Finance Minister Anton Siluanov said.
“This is primarily due to market conditions,” Siluanov told reporters today in Kaliningrad, the Russian exclave on the Baltic coast that borders Poland and Lithuania. “We’ve said repeatedly that we won’t borrow at home or abroad when rates are high.”
The government has scaled back borrowing since President Vladimir Putin’s incursion into Crimea started March 1, leading to the Black Sea peninsula’s annexation from Ukraine later that month and triggering a standoff with the U.S. and its European allies. The Finance Ministry has so far raised less than 11 percent of the local OFZ ruble debt planned for the first half after yields soared to records, while global debt markets were shut to the nation’s borrowers as tensions in Ukraine escalated.
Russia last sold Eurobonds in September 2013, raising $7 billion. The yield on those dollar-denominated notes fell 13 basis points to 4.90 percent as of 8:43 p.m. in Moscow, trimming the increase to 24 basis points since Feb. 28. The rate climbed to an all-time high of 5.76 percent on April 25, the same day Standard & Poor’s cut the country’s credit rating to one level above junk.
Siluanov’s statement is “a confirmation of the existing state of affairs,” Tatiana Orlova, a London-based economist at Royal Bank of Scotland Group Plc, said by phone. “It’s not good news for corporate borrowers who would perhaps prefer at some point to return to the market, but obviously the predominant factor here is the geopolitical situation.”
Following a debt rally in the past week, the ministry announced plans to offer 10 billion rubles ($287 million) of bonds at an auction tomorrow, which would mark its first sale in more than a month. The government has canceled eight auctions in 2014 and voided two others due to lack of “adequate” bids.
The ministry has raised 45 billion rubles in OFZ bonds so far this year, compared with a plan to offer 275 billion rubles for the first quarter and 150 billion rubles in the three months ending June 30.
“We will seriously reduce our local borrowing,” Siluanov said today.
The weaker exchange rate is boosting government budget revenue, Sergey Storchak, Siluanov’s deputy, said separately in Moscow. The ruble has slumped 5.7 percent against the dollar this year, the second worst performance among 24 emerging-market currencies tracked by Bloomberg.
To contact the editors responsible for this story: Balazs Penz at email@example.com Alex Nicholson, Daliah Merzaban