By pulling off three Eurobond sales in just over a year, Konstantin Vyshkovsky has shown he can dodge sanctions imposed against Russia. But as the country looks to swap $4 billion of old foreign bonds for new ones, the Finance Ministry’s debt chief may yet meet his match.
Vyshkovsky said in an interview that before the Western penalties who may be concerned the new notes would run afoul of any curbs, the exchange, which Russia had planned to conduct “closer to the fall” may spook holders of debt purchased.
The U.S. Senate’s new bill on broader limits against companies has ordered a report on what impact possible restrictions on state debt or derivatives might have, while the sovereign isn’t subject to sanctions imposed over Russia’s role in the Ukrainian conflict.
“For the swap, the factor of geopolitics probably has greater significance than for a regular placement,” Vyshkovsky said. “If the overall background will be negative, we can abandon plans to conduct a swap this year altogether.”
Completing a $3 billion foreign-debt sale in June following two deals last year, the world’s biggest energy exporter has so far been able to sidestep tensions with the U.S. when it comes to borrowing. Because it threatens to expose bondholders to risk, trading in securities that predate sanctions is more susceptible to investor jitters. And as it tries to spread out repayment of external debt by issuing new notes, Russia can also afford to wait.
According to Vyshkovsky, after the books were opened for the bond offering in June, a threat of wider sanctions already prompted several investors — including one from the U.S. — to pull out. Because the state bank that arranged it is subject to sanctions, some European buyers were also unable to participate in the deal.
The U.S. extended its list of individuals and companies penalized for the annexation of Ukraine’s Crimea peninsula in March 2014 oBottom of Form
n the same day that the sale was concluded. The Senate’s new legislation allows for new sanctions on state-owned entities in other industries and proposes additional restrictions on the ability of banks and energy companies to raise capital.
According to Vyshkovsky, Russian buyers ultimately accounted for 15 percent of the total even though demand from foreigners alone exceeded the size of the placement, and said that “investors got nervous,” forcing the Finance Ministry to rush the allocation, with the situation in June compounded by sliding oil prices and ruble depreciation.
Russia sold $1 billion of 10-year bonds at 4.25 percent and $2 billion of 30-year debt at a 5.25 percent yield in the end. In September 2013, it last issued 30-year notes.
Vyshkovsky said that the outcome was “successful, based primarily on the cost, the spread.” “The fact that only a few investors rethought their participation in the deal against the backdrop of negative news shows that interest in Russian bonds is very high.”
Since June 19, when Russia started the Eurobond sale, the yield on Russia’s September 2023 dollar-denominated notes has climbed 15 basis points to 3.61 percent.
However, it might be too daunting for Russia to overcome the challenges presented by the planned swap. With the Finance Ministry opting to conduct it separately from regular issuance, Vyshkovsky calls it an undertaking that’s “not easy”.
(Adapted from Bloomberg)