Page 94 - RusRPTJun19

Russia’s Ministry of Finance (MinFin) held its first every “unlimited” auction for its ruble-denominated OFZ treasury bills to high demand on May 8.
MinFin placed almost RUB100bn (or around $1.5bn) through two fixed coupon bonds (2026 and 2022 maturities). The auction was the first one with no-limits on the amount of bonds on offer and a total of RUB73.3bn of the 2026 fixed- coupon bond were sold.
The OFZ have been on a rollercoaster ride in the last 18 months. Backed by rock solid fundamentals and paying a high 8-9% yield, the OFZ were very popular last year, until the US imposed April 6 round of sanctions which lead to a sell off. However, as it has become clear the US Federal Reserve bank will not continue its tightening this year appetite for OFZ returned at the start of this year as investors load up on OFZ once again.
“The strong demand for the longer tenor indicates ongoing euphoria among non-resident investors. According to latest available CBR data for March 2019, their share in total OFZs outstanding increased by 2.3pp year-to-date (YTD) to 26.7% -- amounting to $5.5bn in dollar equivalents. In the same timeframe, the OFZ market increased by $11.6 equivalent, meaning that NRs absorbed almost halve of the additional securities,” financial analyst Stephan Imre of Raiffeisen Bank (RZB) said in a note.
In April, MinFin sold $5.3bn of OFZs in total in dollar terms -- a new record amount – following $4.1 in March, $2.5 in February and $1.2bn in January, RZB reports.
“The euphoria continues, but we would like to highlight the RUB depreciation risks, albeit moderate, and US sanctions risks, which we still expect to materialise (albeit also moderately). However, both the Russian MinFin and the international investor community appear to use the current favourable window of opportunity before newly issued OFZ market issuances could be sanctioned,” Imre said.
The Russian government has adopted a support scheme for bonds issued to finance investment in renewable and environmentally friendly technologies or so-called "green bonds", as part of the national project Ecology, Kommersant business daily reported on May 7.
Companies issuing the bonds and meeting a number of localisation criteria would be able to get from 70% to 90% of the coupon payments on the bonds rebated by the state. A total of RUB9.3bn ($142mn) is granted for the programme by 2021, with the bond placements to be capped at RUB30bn.
As detailed by bne IntelliNews, in the planned Russian state infrastructure spending drive RUB701.2bn will be allocated from the federal budget for the implementation of the National Ecology Project, with another RUB133.8bn from the regional budgets. Another RUB3.2 trillion is supposed to be raised from investors for the Ecology programme. Under the Ecology project, from 2019 to 2024 almost 7,000 complex ecologic approvals (KERs) will be issued to all industrial objects having a considerable negative environmental impact. The KERs would include a monitoring system that could be used for assessments of green bonds placements as well. First green bonds in Russia worth RUB1.1bn were issued in December 2018 by Resursosberezhenie HMAO on Moscow Exchange and are used to finance a household waste
94 RUSSIA Country Report June 2019 www.intellinews.com