Russia Earmarks $4 Billion of 2017 Eurobond Sales for Exchange

  • External borrowings capped at $7 billion for next year
  • Budget deficit to fall to 3.16% of GDP in 2017 vs 3.66%

Russia plans to make as much as $4 billion of next year’s sales of Eurobonds available to exchange for existing debt.

Switching the new bonds for old securities will help cut debt service costs, according to a draft of the three-year budget on the government’s website. Yields on $3 billion of notes due in 2026 have fallen 71 basis points since they were initially sold in May to 4.04 percent on Wednesday.

Russia returned to international markets this year for the first time since sanctions were imposed over its role in the Ukraine crisis in 2014. The government plans to sell as much as $7 billion of Eurobonds in 2017 to finance the widest budget deficit in half a decade while the economy emerges from its deepest recession since the financial crisis. Borrowing on international markets is capped at $3 billion in each of the following two years.

Next year’s fiscal shortfall will decline to 2.7 trillion rubles ($43 billion), or 3.16 percent of projected gross domestic product, from 3.66 percent this year, according to the budget plan based on an average oil price at $40 a barrel and inflation at 4 percent. The cabinet of ministers seeks to balance the budget by 2020.

Brent crude traded at $51.94 a barrel on Wednesday, above this year’s average of about $44. Inflation is forecast to slow to 5.5 percent in 2017 from 7.2 percent this year, according to the median estimate of economists in Bloomberg surveys.

Russia doesn’t plan to have foreign banks underwrite next year’s Eurobonds, Finance Minister Anton Siluanov said last month, after the investment branch of state lender VTB Group acted as the sole manager of its offerings in 2016.

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