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January 18, 2019 www.intellinews.com I Page 13
London Metals Exchange (LME) led to the US Treasury Department (USTD) withdrawing the sanctions completely in December. A little more awareness that imposing financial sanctions
on Russia comes with a real cost means the USTD is likely to be a lot more cautious with the Russian bonds and the organ has already suggested bonds will not be targeted.
In the meantime international investors have pulled back from Russia debt due to the uncertainty. Foreign investors withdrew some RUB500mn ($7.5bn) from the domestic bond market, reducing the share of foreign ownership in the Ministry of Finance’s workhorse OFZ bonds from a peak of 34% in April to 25% as of December. At the same time the yields on the bonds were up by some 200bp over the same period to just under 9% by the close of the year.
Turkey also had an awful year, suffering from a full scale currency crisis of its own making. As 2019 started, the economy is still recovering, but the tardy reaction by the central bank to the crashing lira has done deep damage and it will take the better part of this year for the economy to recover.
Specifically, CEE raised $38,990mn worth of bonds with 75 issues, which was down from $49,791mn raised in 2017 with 88 issues and $41,750mn from 73 issues in 2016.
In the CIS, Russia was responsible for half
of the bond issues in 2018 as issuers raised $24,418mn. Of the 77 issues all the CIS, which Russia was responsible for $13,163mn from 53 issues.
That is way down on the $44,302mn worth of CIS issues in 2017 and $27,284mn of Russian issues in the same year but on a par with 2016 when the two issued $22,196mn and $15,779mn respectively.
The average size of bond issues also fell in 2018. In CEE it was not so significant, dropping from $566mn in 2017 to $520mn in 2018. In
the CIS the fall was more significant, but that was almost entirely due to the halving in size of bonds issued from $413mn in 2017 to $248mn in 2018. Contributing to this drop was smaller players like Russian broker-dealer BCS Global Markets, which was actively issuing a lot of bonds under $100mn to finance its business, whereas the issues in other markets tended
to all be at least $100mn or more.
The outlook for this year is also for subdued activity amongst bond issuers. The sword of Damocles is still hanging over Russia and
the increased yields issuers will have to offer will suppress supply. Turkey too may be out of intensive care, but it is still on the ward and will spend most of this year there, if not longer.