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Capital Markets

Russia: Sovereign goes out to 30 years

Focus is on the potential for corporate debt outperformance in 2006.

Investors confident about the long-term outlook for Russia have been putting their money where their mouths are, and buying the government’s debut 30-year rouble-denominated bond.

According to research from Moscow Narodny Bank, R3.5 billion ($124 million) of bonds were auctioned at an average yield of 6.99%. The issue was three times oversubscribed, “indicating appetite for long-term paper amid Russia’s impressive macroeconomic fundamentals and increased political stability.”

Foreign investors are estimated to have bought as much as one-third of the issue.

The government has an extensive domestic debt issuance programme scheduled for 2006, which envisages selling R186 billion of government bonds and R65 billion of government savings bonds this year. Its efforts are focused on developing a yield curve, and so there are plans to sell bonds with maturities of three, five, 10, 15 and 30 years.

Corporates benefit

With no new international sovereign issuance expected, and Russia continuing its plans to use its stabilization fund to buy back more Paris Club debt this year – finance minister Alexei Kudrin is targeting repayments of $11 billion to $12 billion this year after an initial repayment of $15 billion in 2005 – the country’s domestic market and corporate debt is likely to reap the benefits of ever-growing demand for Russian risk.

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