RUSSIA IS to launch its first international bond in a decade to bolster its public finances and take advantage of the surge in demand for emerging market debt.
Russia, which most recently issued a bond aimed at international investors in 2000, last week signalled plans to raise up to $18 billion (€12 billion) in dollar-denominated securities in the first quarter of next year as the cost of borrowing for emerging market sovereign issuers fell sharply.
Emerging market sovereign bond yield spreads have narrowed to 290 basis points (bp) over US Treasuries, the international benchmark for debt, from 700bp in early March. Russian spreads have narrowed to 240bp from 750bp in March.
Demand for riskier assets such as emerging market securities since the start of the rally in equities seven months ago has driven spreads lower. Emerging market international sovereign bond issuance has soared to $50 billion since the turn in the markets in March, according to Dealogic. There was little issuance at the start of the year and only one emerging market deal in 2008 after the collapse of Lehman Brothers in September.
Paul Biszko, senior emerging market strategist at RBC Capital Markets, said: “Russia has had its first budget deficit this year since 1999, and it needs to make sure its finances are in order. [Officials] have said they want to issue almost $60 billion in international bonds over the next three years, although they may need to raise much less should the oil price hold up.”
A Russian banker said: “Although Russia still has a lot of foreign exchange reserves, it needs to raise money to improve its infrastructure. It is also the right climate for an international bond.”
Russia has more than $400 billion in foreign exchange reserves but has spent $200 billion to prop up the rouble since August last year. – (Copyright The Financial Times Limited 2009)
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