Russia, hit by new U.S. sanctions, to cut 2021 borrowing plan

FILE PHOTO: An employee holds 1,000 Russian rouble notes at Goznak printing factory in Moscow
FILE PHOTO: An employee holds 1,000 Russian rouble notes at Goznak printing factory in Moscow, Russia July 11, 2019. REUTERS/Maxim Shemetov/File Photo

April 15, 2021

By Andrey Ostroukh and Katya Golubkova

MOSCOW (Reuters) -Russia will cut its 2021 borrowing plan more than expected and will offer only new OFZ treasury bonds from June 14, the date after which U.S. banks will be barred from buying rouble-denominated state bonds directly from Russia.

The new set of sanctions announced on Thursday battered the rouble and state bonds but analysts say it will not have a significantly adverse impact on the Russian budget and markets in a longer run.

    The United States imposed a broad array of anti-Russian sanctions, including on purchases of Russian debt, to punish Moscow for alleged interference in U.S. elections, cyber-hacking and other “malign” acts.

Commenting on the U.S. move, which sent ripples across Russian markets, the finance ministry said it decided to cut this year’s borrowing plan by 875 billion roubles ($11.45 billion) and would be flexible over OFZ bond placement plans.

The ministry had earlier considered cutting the 2021 borrowing plan from 3.7 trillion roubles by up to 700 billion roubles.

In order to avoid the risk of forced selling of its state bonds by foreign investors, the finance ministry said it would offer only new OFZ series after June 14 and would stop offering top-up OFZ series that were registered before that date.

  The share of foreign banks, pension funds and international asset managers among OFZ bond holders has been on the decline for months.

By late March, foreigners’ share among OFZ holders slumped to 20.2%, its lowest since August 2015.

Markets have long prepared for such a moderately tough decision that targets only buying of OFZs directly from the finance ministry but not on the secondary market, said Dmitry Dolgin, chief economist with ING Russia.

“But the negative thing is no one can guarantee that this will all stop here,” Dolgin said.

Russia’s state-run lenders Sberbank and VTB have vouched to replace foreign investors if needed and help the finance ministry place OFZ bonds used to plug budget holes.

U.S. investors hold around 7% of OFZs, or less than 1 trillion roubles, according to the central bank. This compares to over 4 trillion roubles in OFZs held by Sberbank and VTB.

The central bank, which will consider whether to raise interest rates at its next policy meeting on April 23, said it was ready to use the tools it has to preserve financial stability if needed.

($1 = 76.40 roubles)

(Additional reporting by Elena Fabrichnya and Darya Korsunskaya; Writing by Andrey Ostroukh; Editing by Gareth Jones)