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What’s Behind Russia’s Triumphant Return to Sovereign Debt Market

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On Monday, Moscow announced a return to the international bond market. Russia issued sovereign debt for the first time since 2013, selling $1.75 billion in ten-year Eurobonds at an annual yield of 4.75 percent.

The issuance was a surprise for market players and experts, Russian economist Anton Tabakh wrote in an article for the Carnegie Moscow Center think-tank. 

A man watches a monitor showing graphic of spread performance between Italian and German bonds, in Milan, Italy, Thursday, Jan. 15, 2015 - Sputnik International
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Earlier, international banks refused to take part in buying Russian debt due to Western sanctions. The issuance was delayed. However, finally the Russian Finance Ministry announced the deal.

The sale had an unusual format, the economist noted. It was organized by only one bank — VTB Capital, a subsidiary of the Russian VTB Bank financial services corporation. Usually, several banks, including major international ones, are involved in issuing sovereign debt.

Moreover, funds will be transferred via the Moscow Exchange’s National Settlement Depository (NRD), rather than the traditional Euroclear and Clearstream systems.

However, demand for the Russian bonds was surprisingly high for an economy in crisis and under sanctions, the article read.

Total bids for Russian bonds topped $7 billion, while the Russian Finance Ministry limited total bids to a maximum of $3 billion. The $1.75-billion issuance was considered sufficient by the ministry, Finance Minister Anton Siluanov said.

Currently, the Russian debt, including the recent bond issuance, is nearly $51 billion, or four percent of GDP. The debt comprises mainly Eurobonds ($37 billion) maturing in 2043 and loan guarantees ($11 billion).

In comparison with the sovereign debt of many developed countries, the sum is small. In addition, Russian gold and foreign exchange reserves estimate at nearly $300 billion. This is why neither the government nor foreign investors have concerns about the debt service.

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