Russia selects four investment banks to manage its upcoming eurobond issue

Russia picks 4 banks to manage its debt issue

MOSCOW — Russia’s finance ministry announced Friday its pick of four investment banks to manage its upcoming sovereign eurobond issue, which could raise up to $17.8 billion and will mark the country’s return to the debt market after ten years of surpluses.

Barclays Capital, Citibank, Credit Suisse and VTB Capital have been selected to jointly organize Russia’s eurobond issue, the ministry said in a statement. Deputy Finance Minister Dmitry Pankin was quoted by the state-run news agency RIA Novosti as saying that other banks could be tapped to arrange the next issue.

Russia announced last year that it would have to borrow in capital markets to cover its budget deficit — which may reach 6.8 percent of the GDP this year. Moscow last placed bonds in 1998 and did not return to the debt market after a sovereign debt default the same year.

The Finance Ministry on Friday said there has been no final decision yet on when and how much money to place, but Finance Minister Alexei Kudrin said last week that the first tranche of the issue could be sold in the first half of the year.

Russia’s 2010 budget mentions a possibility of borrowing up to $17.8 billion, but Pankin has recently said Russia would borrow far less than that as its economy is recovering faster than expected.

Russia paid off most of its massive Soviet-era debt to the Paris Club and the London Club by 2006. Last week, it paid a symbolic $1 million to the London Club to settle that debt.

Two rating agencies, Fitch and S&P, raised the outlook for Russia’s sovereign debt within the past two months. Kudrin lauded those steps, saying that this would make Russian borrowing significantly cheaper.

While Russia clearly needs far less money that its previously expected, market analysts said borrowing would be wise, since this would allow the government to keep its $60 billion rainy-day fund intact in case oil prices drop.

Although Russia’s gross domestic product declined by 7.9 percent last year, Russia’s economy has been on a rise since the third quarter — fuelled by growing oil and gas prices. The budget deficit came to 5.9 percent of GDP in 2009 — several percentage points better than orginally planned.