Page 21 - RusRPTJun21

probability of export hard currency selling ahead of dividend payments is higher this year than the last two.”
Debt and bonds
The last big factor at play is debt redemptions to pay off bonds and loans made from the international capital markets. However, as a result of the Kremlin’s effort to build a fiscal fortress Russia has record low external debt and the redemption schedule is light.
Likewise, following the crises of 2008, 2014 and the years of stagnation that followed Russia’s leading corporates have heavily deleverage and owe very little to international banks and investors.
According to the CBR’s data, external debt redemptions in the next four months will be moderate, at around $1.2bn monthly. The biggest payment due in the coming months is on June 16, when Sberbank redeems $1.0bn of Eurobonds.
On June 14 the US sanctions on Russian Ministry of Finance ruble-denominated OFZ treasury bills comes into effect banning US investors from participating in the primary auctions for this workhorse bond, used to finance the Russian budget.
After being overweight in these bonds for years international investors started selling them in the run up to the April 15 sanctions, afraid that US investors could be banned from owning the bonds outright. About $4bn worth of bonds were sold and the share of foreign investors in the paper fell from a high of 34% to 19%.
The eventual sanctions are merely symbolic as while US investors cannot participate in the auctions they are free to buy and own the bonds on the secondary market, which is dominated by the biggest state-owned banks that are happy to sell them on. According to CBR data, there was a RUB298bn ($3.8bn) net outflow in Jan-Apr 2021, while May has seen moderate net inflows as the bonds return to favour.
The inflows into the OFZ market have already proven to provide key support for the ruble, as bne IntelliNews reported in a feature “Russia’s amazing levitating ruble.”
The collapse of oil prices at the start of March after Russia withdrew from the OPEC+ deal was a disaster for Russia, but while the price of oil lost 56% of its value in the following month, the ruble lost only 19% over the same period. The reason was that enough money continued to flow into the OFZ market to push the ruble up despite falling oil prices. International investors were willing to ignore an oil price shock that in the last decade would have caused a major crisis in Russia simply because every dollar of Russian debt is covered with a dollar of cash in the GIR. There is almost zero chance of the government defaulting on its bonds even if oil became free.
The only reason international investors will stop buying the lucrative OFZ bonds is if they are threatened with politically motivated sanctions.
21 RUSSIA Country Report June 2021 www.intellinews.com