Page 92 - RusRPTFeb19

ratings at BBB/A-2, the agency said in a statement on January 19, with stable outlook, PRIME reported on January 21. “Russia's solid external and public balance sheets, coupled with a flexible exchange rate and prudent fiscal framework, should enable its economy to absorb shocks from possible new international sanctions,” the agency said. “The likelihood of the current US government imposing sanctions on the secondary market for Russian sovereign bonds remains uncertain; we believe such a scenario would be disruptive to financial markets.”
8.5 Fixed income
Foreign investor sentiment on OFZ auctions turns positive after 40% of RUB35bn OFZ issue sold to foreigners.
After a big sell off towards the Russian Ministry of Finance work horse treasury bills, the so-called OFZ, in 2018, sentiment seems to have changed after non- residents bought 40% of a RUB35bn in the ministry’s first auction of the year in January.
Non-residents bought two out of five of the securities at the last auction, according to Konstantin Vyshkovsky, head of the Ministry of Finance’s debt department, as cited by Interfax.
The Ministry of Finance held three OFZ auctions and placed all offered papers worth a total of RUB35bn on January 16 -- the best result since July. Foreign investors sold off some RUB500mn worth of OFZ in 2018 – formerly an investor’s darling thanks to their high yield of just under 9% set against rock solid macro fundamentals -- bringing their share of the outstanding bonds down from a peak of 34.5% on April 1 to 24.7% on December 1.
The OFZ play a key role in funding the government spending plans and the government penciled in issues worth RUB1.1 trillion each year for the next three years in the 2019-2022 budget. If the appetite amongst foreign investors for the OFZ dries up then the Ministry of Finance will struggle to fund the additional RUB2 trillion of spending president Vladimir Putin called for in his May Decrees last April to “transform” Russia.
In the first quarter, the Ministry of Finance plans to place OFZs for RUB450bn, and in 2019 it plans to raise RUB2.4 trillion, which is a change of policy and a significant increase in borrowing for the government. In the past the budget has been planned to come out flat, but the new borrowing programme assumes a, still modest, 0.5% budget deficit, which is a radical departure, for Russia, from previous policy.
Last year the MinFin was unable to fulfill the original placement plan and attracted a little more than RUB1 trillion from the market.
The Ministry of Finance is also planning to place Eurobonds on the international capital markets in 2019 and does not exclude entering the market in the first quarter, according to Interfax. In the boom years the government typically raised $7bn a year with Eurobond placements. Running headline budget surpluses at the time, the issues were as much a benchmarking exercise to establish a sovereign yield curve for the benefit of pricing corporate issues, as they were attempts to raise funds. That has changed now and
92 RUSSIA Country Report February 2019 www.intellinews.com