Page 13 - RusRPTMay21

Part of that latter option could be barring US investors from Russia's ruble-denominated debt, as they already are from buying Moscow's dollar-denominated primary bond issues. However, US investors are not barred from participating in the secondary market trading of Russia’s Eurobonds, nor are there restrictions on owning Russian Eurobonds.
The concerns are over new sanctions that would target the Russian Ministry of Finance ruble-denominated OFZ treasury bills, which is the workhorse instrument used to finance the Russian budget.
Total OFZ issuance is RUB13.86 trillion ($182.22bn) as of February, according to the central bank. Foreign pension funds and other international asset managers hold just over RUB3 trillion worth, roughly 23%.
That share is the lowest it has been in five years. A year ago, it was nearly 35%. Russian banks instead are plugging the gap, last month buying over 40% of the debt issued by the government in some of the biggest auctions on record raising circa $2bn for the state in a single auction. That auction followed the previous week’s decision to cancel the auction due to high market volatility on the back of geopolitical concerns and the meltdown of the Turkish currency. The 10-year benchmark yields RU10YT=RR - a proxy for borrowing costs - jumped to 7.36% in the secondary market, the highest in almost a year in the third week of March.
US funds would be allowed to keep existing OFZ holdings, so only newly issued debt would be affected, although even that could be complicated by the fact Russia often adds to, or "taps", existing bonds rather than issue new ones altogether.
Russia expects to issue RUB3.7 trillion ($48.65bn) of OFZs this year, down from the RUB4.4 trillion last year but up from the circa RUB2.5 trillion Ministry of Finance has been issuing each year prior.
Central bank data shows nearly 7% of OFZs are held by US investors. Extrapolated to new sales, that would take away almost $3.4bn in demand. If the UK joined the ban that could be another 7% of demand gone, reports Reuters. The EU would be another 5%, although there is little suggestion it would participate.
Russia's finance ministry has downplayed the likelihood of Biden sanctioning OFZ issuance but said it would be prepared for such a move. .
VTB and Sberbank, Russia's two largest state-run banks, have said they would be ready to increase their OFZ holdings. VTB Chief Executive Andrey Kostin reckons that with Russia’s ratio of public debt to gross domestic product still only around 20%, the government could double its debt to around RUB30 trillion without much trouble.
Sberbank holds over RUB3 trillion worth of OFZs and VTB has over RUB900bn worth. Some other banks, such as Otkritie, also hold significant amounts.
The central bank may also intervene, officials have said.
13 RUSSIA Country Report May 2021 www.intellinews.com