The government has hired Barclays Capital, Citigroup, Credit Suisse Group and VTB Capital as co-organizers of the initial installment of a planned eurobond issue, the government’s first foreign debt sale since 1998, the Finance Ministry said Friday.
“The banks’ experience, proposed placement strategy for the upcoming issue, as well as their experience and the quality of their work on the Russian market were taken into account,” the ministry said on its web site.
The government is seeking to raise as much as $17.8 billion — with notes sold in several installments through 2010 — in the first offering of new international debt since its 1998 default on domestic debt. Deputy Finance Minister Dmitry Pankin said he hopes that Russia will be able to sell less than the planned maximum this year.
Russia is venturing back onto international credit markets just as investors are retreating from developing-nation assets on concern that Greece’s budget crisis could spread to other European economies.
“Our goal is to show that we’re different from Greece or Portugal, which have to borrow to cover their budget deficits,” Pankin said. “We can solve all our problems without borrowing abroad at all.”
The government will nevertheless “definitely borrow” this year “to set a benchmark Russian borrowers can reference,” Pankin said. The ministry will probably hold a bond roadshow, even though the organizers say it may not be necessary, he said.
The extra yield that investors demand to own Russian bonds rather than U.S. Treasuries widened 6 basis points, or 0.06 percentage point, to 2.19 percentage points, the highest level since Dec. 18, according to JPMorgan Chase’s EMBI+ Index.
The yield on Russia’s 30-year benchmark dollar bonds maturing in 2030 rose 3 basis points to 5.446 percent, its highest level since Nov. 10, prices on Bloomberg show. Bond yields move inversely to prices.
Pankin said the ministry picked banks that proposed an “aggressive strategy” of achieving spreads to U.S. Treasuries “tens of basis points” lower than the “current” spread of 160 to 180 basis points.
The government will sell the first installment of its foreign-currency debt in dollars or euros no earlier than April, after the Finance Ministry sets the size, currency and legal structure of the notes, Pankin said. Russia will offer “more than one installment” of eurobonds this year, he said.
The government plans to use the money it raises to plug a 2010 budget gap that may swell to 6.8 percent of gross domestic product, Finance Minister Alexei Kudrin said this week.
Last year’s deficit, the first since 1999, reached 5.9 percent. The economy shrank the most on record in 2009, plunging 7.9 percent after rising 5.6 percent the previous year, as the price of oil slumped 77 percent from peak to trough and companies struggled to raise funds during the credit crisis.
Pankin said this week that the bonds may be sold with a 30-year maturity and may be registered with the U.S. Securities and Exchange Commission to make them accessible to a wider group of investors.
It’s “critical” that Russia’s bonds are registered with the SEC, said Michael Gomez, co-head of emerging markets at Pacific Investment Management Co. “That would allow these bonds to be a part of a set of indices which are much greater than that of just the emerging world, and that increases the structural demand for Russian debt,” Gomez said in Moscow on Thursday.
Pankin said the government may seek to attract private investors and investors in Asia “to achieve the best possible placement result with smaller spreads.”