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Russia May Pick Banks for Foreign Bond Sale This Week

February 4, 2010

Feb. 3 (Bloomberg) — Russia will choose banks to manage the government’s first foreign bond sale in more than a decade as early as this week, Finance Minister Alexei Kudrin said.

The decision will be made in the “next few days,” Kudrin said at a Troika Dialog conference in Moscow today. Russia is seeking to raise as much as $17.8 billion of notes, sold in several installments through 2010, in the first offering of new international debt since its 1998 debt default.

The government on Dec. 24 named 22 banks including Deutsche Bank AG, Goldman Sachs Group Inc., Renaissance Capital and VTB Capital in its shortlist for organizing the sales. Russia plans to use the money it raises to plug a budget gap that may swell to 6.8 percent of gross domestic product, Kudrin said today.

“The sale will be an important world event,” Ruben Vardanian, chairman at Troika, Russia’s oldest investment bank, said in an interview on Bloomberg Television. There’s a “big appetite” for Russian debt among investors, Vardanian said.

The Russian government had $19.8 billion of foreign- currency bonds outstanding, compared with $435.6 billion in international reserves, according to Bank Rossii data last month. Russia exchanged Soviet-era debt in 2000 for $21.2 billion of bonds maturing in 2010 and 2030 in its only offering of foreign-currency debt since 1998.

The Finance Ministry will probably choose four banks to manage the bond sale, Deputy Finance Minister Dmitry Pankin told reporters today. Russia is considering selling some of its debt with 30-year maturity and may register its new bonds with the U.S. Securities and Exchange Commission to increase their appeal for a wider group of international investors.

Yield Falls

The yield on Russia’s 30-year benchmark dollar bonds maturing in 2030 dropped five basis points to 5.357 percent, prices on Bloomberg show. Bond yields move inversely to prices.

Pankin said today it will be “logical” for state-owned corporations seeking to sell foreign-currency debt to wait for Russia to sell sovereign bonds first to avoid competition, although there was no “special government decision” on the matter.

Pankin said last month it won’t be “technically” possible to complete the first sale of foreign bonds until at least April. Russia is rated Baa1, three levels above non-investment grade, by Moody’s Investors Service and one rank lower at BBB by Standard & Poor’s.

The first installment of the bond sale may be about $5 billion, according to Stanislav Ponomarenko, a fixed-income analyst at ING Groep NV.


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