Debt Refinancing: The European Market Is Closed, and the Prospects for the Russian Market Are Very Vague
- 5.07.2021, 8:48
Big players simply won't want to deal with toxic assets.
According to the Ministry of Finance of Belarus, the external public debt as of June 1 amounted to $ 18.1 billion. The government plans to refinance it, including through new government borrowings, the website naviny.by writes.
European financial market is closed
The Belarusian authorities have been attracting financing by placing government bonds, the so-called Eurobonds, on Western markets for more than ten years. Investors bought the last two issues of Eurobonds last summer, on the eve of the presidential elections in Belarus.
According to Deputy Finance Minister Volha Tarasevich, the placement was very successful. “We managed not only to fulfill but also to overfulfill the plan to attract borrowings. Two issues of Eurobonds were placed for $ 1.25 billion, and bonds were issued on the Russian market for 10 billion Russian rubles,” said the Deputy Minister, speaking at the “Debt Market of the Republic of Belarus” round table on March 19.
More than 75% of Belarusian Eurobonds were bought by large British and American management companies and investment funds. At the same time, the demand for Belarusian government bonds exceeded the supply four times.
However, since August 2020, the situation on the European securities market in relation to Belarus has changed dramatically. Western countries, not recognizing the results of the presidential elections and responding to violence against participants in the Belarusian protest movement, began to impose sanctions and conduct an active campaign to inform holders of Belarusian government bonds about the situation in Belarus.
Representatives of the Belarusian opposition have also repeatedly called on Western investors to get rid of Belarusian government bonds and even insisted on their early redemption. Some responded to the call: for example, the Danish BankInvest sold Belarusian bonds.
But foreign investors are in no hurry to dump the debt securities of Belarus on a massive scale: it is unprofitable for them to sell off Eurobonds, the yield on which is very attractive.
The likelihood that Belarus, given such an unfavorable information background, will want to issue new Eurobonds is very low - in this case, Eurobonds will be issued at much higher interest rates. And, of course, reputable banks are unlikely to want to organize the emission of toxic Belarusian securities, risking their image.
What are the prospects for the Russian market?
In such a situation, Belarus can count on borrowing only on the Russian stock market.
Earlier, the Ministry of Finance announced "organizational measures to ensure the possibility of placing bonds on the territory of Russia."
On May 13, Aliaksandr Lukashenka signed Decree No. 183, according to which the Belarusian authorities intend to place bonds in Russia for 100 billion Russian rubles, which is more than $ 1.35 billion at the current exchange rate. The document was adopted “for the purpose of refinancing the external public debt of the Republic of Belarus.”
The Council of Ministers was instructed to "attract external public debt of the Republic of Belarus by issuing government securities in the territory of the Russian Federation as government debt in the amount of up to 100 billion Russian rubles (inclusive) with a maturity of at least 1092 days" in 2021-2023.
The organizers of the issue, according to the resolution of the Council of Ministers No. 358, will be Gazprombank, VTB Capital, Moscow Credit Bank, BCS Bank, Rosselkhozbank, Ak Bars Bank, SKB-Bank, Sovcombank, Univer Capital, and Promsvyazbank.
The funds received from the placement of government securities will be credited to the bank account of the Ministry of Finance of Belarus, opened in the Russian Gazprombank.
According to analysts, it will be difficult to place bonds for 100 billion Russian rubles, even taking into account the fact that the process will take three years.
Senior financial analyst at Kroll (Germany) Maxim Adaskevich, in a commentary for Onliner.by, cited the example of Kazakhstan, which recently struggled to complete the placement of bonds on the Russian market in an amount equivalent to $ 550 million. At the same time, the expert noted, the economy of Kazakhstan is three times higher than ours, and the country's international credit rating is significantly higher than the Belarusian one.
“Belarus previously placed only small issues on the Russian market, worth about $ 140 million each,” the analyst notes.
How many bonds the Ministry of Finance will sell in the end depends "on the willingness to agree to a higher rate," Adaskevich is sure. He recalled that previous issues of Belarusian government securities on the Russian market were sold with a yield of about 8.5%, and now, perhaps, they will have to agree to a rate of 9-10%, the analyst suggests.
Although, there are versions that the placement of the Belarusian government bonds in the Russian market may have a political subtext. The Russian financial system is largely similar to the Belarusian one, and if a relevant decree is issued from above, it is quite possible that Russian investors will buy the Belarusian government bonds.
The question is about interest rates
The Finance Ministry's intention to sign an agreement with ten Russian banks, “firstly, does not yet guarantee the fact of placement,” said Vadzim Iasub, senior analyst at Alpari-Eurasia, “and, secondly, it tells us nothing about what the yield of these bonds will be and how much the Belarusian state will have to pay to Russian investors for the opportunity to borrow money from them.”
"The banks, organizers of the placement, do not buy these bonds. They, as intermediaries, are engaged in placement and look for buyers, charging a commission for this. But buyers, given the fact that the Belarusian government has nowhere else to turn, may want more money," said Iasub.
At the same time, he drew attention to the fact that the Ministry of Finance authorized to conclude agreements with banks "not of the first order."
“Interestingly, these banks are not so small by Russian standards, but they are not included in the top five either. Apparently, for such Russian giants as Sberbank or VTB Bank, this story may be a little toxic,” the expert said.
On the other hand, the analyst argues, “how many banks will be involved - 2 or 150 - is not so important, this is a technical moment.” The more banks there are, the theoretically easier it is to raise the required amount because the goal is to achieve the maximum possible volume of the issue in three years.
“The main point is to attract the desired amount,” stressed Iasub. Although, the expert believes that this amount (less than $ 500 million a year) "does not cover the needs of Belarus - before the sanctions, about $ 2.5 billion a year had to be attracted to refinance the debt."
In addition, the question rests on interest rates. “If investors are satisfied with the interest rate, they will give money; if they are not satisfied, they will not. And the rate, first of all, depends on the risks of non-return. There is such a concept of “country risks,” including political ones. I think that, with regard to Belarus, these risks have increased manifold. Accordingly, the profitability may not be very pleasant for Belarus,” concluded Iasub.