2016-03-25 07:43:40.902 GMT
By Andrey Biryukov and Evgenia Pismennaya
(Bloomberg) -- Russia hasn’t been able to line up a
suitable lead manager for a planned $3 billion Eurobond because
of U.S. and European Union pressure on major banks not to
participate, meaning the high-profile sale is likely to be
delayed or even shelved, senior officials said.
Only two Western banks are still interested in helping sell
the bond, one of the officials said, speaking on condition of
anonymity. Another official said Russia so far hasn’t been able
to find a bank big enough to successfully lead the issue that
would be willing to participate, despite sending out requests
for bids to about two dozen major banks earlier this year.
Relying on Russian banks could deter western investors,
since the country’s main lenders are subject to U.S. and EU
sanctions. Russia isn’t confident that Chinese banks could
successfully lead the offering aimed mainly at buyers in Europe
and the U.S., the second official said.
Investor Concern
A prominent underwriter is important for the Kremlin but
pressure on banks from the U.S. and EU proved stronger than the
government expected, the official said. Warnings from the U.S.
and EU to lenders to stay away from organizing the deal have
also raised concerns among investors about the risk of falling
afoul of sanctions if they buy the debt.
The Russian government itself is not subject to sanctions,
but the EU earlier this month said banks should be “mindful” of
the risks that a bond sale wouldn’t ultimately benefit
sanctioned entities, such as state-owned lenders.
“It was to be expected that international banks are
refusing to participate in our issue,” said Pavel Medvedev,
Russia’s financial ombudsman. “Until we make peace with the rest
of the world, no one is going to do us any favors and work with
Russia. For banks, this is dangerous -- they could face
punishment.”
Facing a sharp drop in budget revenue because of plunging
oil prices, Russia is scrambling to find ways to cover a
widening budget deficit. In addition to the bond issue, the
government is planning to sell stakes in some major state
companies and hoping to draw western banks as consultants later
this year.
One senior official said the government had been hoping to
use the Eurobond sale to show that Russia could still borrow
even amid sanctions. In addition, while the $3 billion planned
offering would cover only a relatively limited part of the
deficit, it would bring much-needed foreign currency, which is
in short supply now with export revenue plunging, the official
said.
March Deadline
As recently as last week, Finance Minister Anton Siluanov
said he was confident there would be strong demand for the
Eurobond issue this year. On March 1, department head Konstantin
Vyshkovsky said the ministry would chose banks to organize the
deal by the end of March, Interfax reported.
That’s now unlikely, according to the officials.
Siluanov said Thursday that there had never been a firm
deadline, other than the mandate to go to market before the end
of the year.
“One of the main reasons why they still want to issue
Eurobonds, even though it is clearly very difficult and may be
more expensive than they expected before, it is to test the
markets,” Liza Ermolenko, a London-based analyst at Capital
Economics Ltd., said. “This $3 billion is very small compared to
Russia’s deficit. They will still cover most of the deficit by
using the Reserve Fund and domestic borrowing.”
--With assistance from Anna Andrianova, Ksenia Galouchko and
Ilya Arkhipov.
