Russia signals intent to borrow abroad

Russia signals intent to borrow abroad
By Catherine Belton in Moscow
Copyright The Financial Times Limited 2009
Published: April 14 2009 12:36 | Last updated: April 14 2009 13:19
http://www.ft.com/cms/s/0/09938aa2-28e7-11de-bc5e-00144feabdc0.html


Russia could borrow on international markets for the first time in a decade next year, Alexei Kudrin, the Russian finance minister said, as the government seeks ways to fund looming budget deficits and help heavily indebted companies raise money.

Mr Kudrin warned Russia could “take several years to exit the crisis” as it tackles its first recession in a decade triggered by plunging commodity prices.

Russia had spent the last 10 years building up vast reserves from windfall revenues from surging oil prices and paying down sovereign debt after the August 1998 default. But it lost one third of reserves, or $200bn, battling a run on the rouble at the end of last year, while the remaining $384bn could be stretched covering budget deficits for the next three years.

“We need to look at the possibility of entering the external market already in 2010 and this year to hold a roadshow … which will allow international investors to get better acquainted with our aims and plans,” Mr Kudrin said.

He added that government forecasts for a 2.2 per cent drop in GDP this year were “optimistic” and warned that Russia was unlikely to face such favourable external economic conditions as it had recently for as much as 50 years.

Konstantin Vyshkovsky, a Finance Ministry official, told reporters that Russia could issue up to $5bn in Eurobonds next year with maturities of 3 to 5 years. Mr Vyshkovsky said the issue would be aimed at easing the way back to the market for Russia’s heavily indebted corporate borrowers for whom international markets are now closed. “The important issue here is not so much to receive funds to cover the budget deficit but to create a benchmark for corporate borrowers,” he said.

Even as the Russian government paid down sovereign debt in the last 10 years, Russian companies went on a borrowing binge and now owe nearly $500bn in foreign debt. Foreign banks and their Russian borrowers are locked in complicated restructuring talks on some $130bn that must be paid down this year.

The Russian government has said it won’t bail out even the biggest Russian companies after losing $200bn in the battle against the rouble. Last year, the government initially issued $11bn in loans to prevent strategic stakes in Russian companies from falling into the hands of foreign creditors.

Russian officials have said Russia’s remaining $384bn in reserves is enough to cover a budget deficit of 7.3 percent of GDP this year, and forecast budget deficits of 5 per cent of GDP in 2010 and 3 per cent in 2011.

But Arkady Dvorokovich, the Russian president’s economic advisor, warned on Tuesday that a budget deficit of 5 per cent next year could pose “excessive risks for the economy”. Russia’s finances will also be under pressure from an expected surge in bad loans in the banking system with growing calls for the government to do more to recapitalise banks.