Moscow. February 25. Russia has not borrowed on foreign markets for about two and a half years, although the budget needs the money to cover the deficit, investors – Russia’s new debt, and corporate borrowers – sovereign benchmark. The option of placement of Eurobonds roams from budget to budget, but this year, when the amount of possible external borrowings uzhalsya from $7 billion to $3 billion, Russia’s return to the market under the condition of relative geopolitical peace was perceived as something real. In early February the Ministry of Finance has strengthened the timid as long waiting, sent to different parts of the world the proposal to take part in the organization of accommodation.
However, the way the Ministry of Finance, as it turned out, is not only a weak commodity market conditions and global political instability. On the example of sovereign Eurobonds of US decided to remind Moscow that sanctions are not the sum of the formal obstacles that easily if you wish to bypass, and a set of measures to damage the economy of the opponent country.
Business as usual will not work
On Thursday The Wall Street Journal reported that the U.S. government had warned some of the largest American banks to participate in the placement of Russian sovereign Eurobonds as it believes that this violates the sanctions regime against Russia. Sanctions the rules do not prohibit the banks to support the Russian Federation in the placement of sovereign bonds, however, according to the American Ministry of Finance, assistance in attraction of external financing for Russia would be contrary to U.S. foreign policy.
EconomyFebruary 25 2016США warned banks from participation in the offering to the Russian aurobindonian read more
The Finance Ministry in early February 28 sent banks requests for proposals for the provision of services on placement of bonds on the international capital market and financial services agent.
Deputy Finance Minister Sergei Storchak, answering the question of whether the Agency refusals from banks, told reporters that “this (refusal) is done in a different form – they are not responding”.
“Many banks will not respond. I the exact number can not say, but many simply never came back with our suggestions. This means that they do not participate. All refused: some never responded and some responded. We have, from whom to choose,” he told reporters Thursday.
Assistant to the President Andrei Belousov said that the recommendation of the U.S. Treasury is regrettable, but will not prevent Russia to borrow on foreign markets, if such a decision will be made.
“It is a pity”, he replied to a request of journalists to comment on the recommendations of the U.S. Treasury. On the question of how this recommendation will affect the deal, if Russia decides to enter the market, Belousov said, “I don’t think even”. Assistant to the President also does not expect that this will affect the potential cost of borrowing.
“Mailing list” of the Ministry of Finance was very wide: in addition to the traditional participants of the Russian sovereign loans, there are both banks, it is still not too active in the Russian Federation. In the list were Barclays, BNP Paribas, Bank of America Merrill Lynch, Bank of China, Wells Fargo, “VTB Capital”, Gazprombank, Goldman Sachs, JP Morgan, Deutsche Bank, Industrial and Commercial Bank of China, Credit Agricole, Credit Suisse, Landesbank Baden-Wuerttemberg, Morgan Stanley, Nomura, Sberbank CIB, Citigroup, Societe Generale, TD Securities, HSBC, RBC Capital Markets, UBS, Scotiabank, China Construction Bank, Agricultural Bank of China, UniCredit and Mizuho Financial.
According to the WSJ, among the bankers of wall street while there is no consensus: some banks, for example Citigroup, said that to participate in the organisation of placing of the Russian Eurobonds will not, others, such as Goldman Sachs and JP Morgan continue to explore options.
A warning from us authorities followed a question posed to one of the banks regarding the possibility of participation in the tender the Russian Ministry of Finance.
The U.S. Treasury told the newspaper that Russia remains a “high-risk” by the market, but also warned about reputation risks in case of return to normal (business as usual) business with Russia.
Representatives of some banks told the WSJ that their invitation to participate in the tender may partly be due to the attempt of the Russian side to check the existence of loopholes in the sanctions regime.
Western sanctions prohibit investors to buy new debt obligations of a number of major Russian companies and banks, but the government of the Russian Federation, these restrictions are not formally apply. At the same time, representatives of the American banks fear that proceeds from the placement of funds can then be directed under the sanctions of the company.
The last time the Russian Federation has attracted funds from the international debt market in September 2013, placing Eurobonds totaling $7 billion At the end of last year, Sergei Storchak said that the Finance Ministry receives from investors signals about the scarcity of Eurobonds of the Russian Federation on the market. Many investors are concerned about reducing Russian risk in the market, he said then.
Waiting for instructions
Sources in three European banks from the list of applicants who received requests for possible placement of Eurobonds of the Russian Federation, said that so far no instructions about whether to participate in this deal from the regulators before they were reported.
“If American banks will be given an official instruction not to participate in the IPOs of the Russian Federation, most likely European banks will also refrain from such transactions, but so far no clarity on this issue”, – said one of the bankers.
“Technically, the placement of sovereign Eurobonds can organize and only Russian banks (on the mandates of the claim of “VTB Capital”, Gazprombank and Sberbank CIB), although it is likely that at least one European mandate for transactions is still needed, otherwise investors may have questions,” said another source in the banking circles.
European banks after huge fines for violating the sanctions regime against Iran, “blow on water”, unlike American colleagues who have a lively dialogue with their regulators, says another banker. He recalls a recent case where the European Bank received a mandate for the deployment of large Russian securities of an Issuer that pay big commissions, while the company itself was not under sanctions, but under the constraints of one of its shareholders. The Bank asked for approval of the deal in Brussels, while European regulators have agreed with each other the decision to participate in the transaction said a large U.S. Bank. He turned to OFAC (Office of Foreign Assets Control, the structure of the U.S. Treasury, responsible for enforcement in the area of sanctions), quickly received approval and participated in the placement instead of Europeans.
However, even if the American authorities directly will ban banks involved in the placement of Russian Eurobonds, it does not nullifies the potential deal, said another source at a major Bank. According to him, attempts of pressure from the American authorities will only reinforce the desire of the Russian authorities to place debt securities in foreign markets, and then the deal will become a “matter of principle”.