Why Russia needed 'secret' $3bn bonds

In the expert’s opinion, not comeback of Russian capitals but protection of stricter sanctions is the point

In 2018, Russia will issue anonymous bonds with the volume of $3 billion. According to President Vladimir Putin, it's needed to help the capital return to Russia whose outflow has been over $300 billion in the last 5 years. The experts surveyed by Realnoe Vremya think not comeback of Russian capitals but protection of stricter sanctions is the point.

$3 billion for secret investors

President Vladimir Putin told about the issue of 'secret' bonds to repatriate capital to Russia at a pre-New Year meeting with entrepreneurs in the Kremlin on 21 December. The tool will appear in 2018 already, this issue was discussed by the government and the Central Bank. And now parameters of the issue need to be discussed. The issue volume can total $3bn.

According to Putin, very big businesses that are nervous because of a possible expansion of western sanctions turned to the Russian jurisdiction asking to find a mechanism to return money – it became unsafe to hold capitals abroad. The new set of sanctions can affect a bigger number of Russian companies. In addition, the ban on purchasing federal bonds of the Russian Ministry of Finance by American investors s under discussion. Minister of Finance Anton Siluanov said nowadays big part of federal bond buyers were foreigners.

President Vladimir Putin told about the issue of 'secret' bonds to repatriate capital to Russia at a pre-New Year meeting with entrepreneurs in the Kremlin. Photo: kremlin.ru

Several experts suppose if Americans are forbidden to invest in Russian state papers, it will lead to their mass sale and provoke the ruble's fall. Others think it's an exaggeration because the share of American companies among federal bond purchasers is not so big.

Anyway, the bond issue should smooth the consequences of the net capital outflow from Russia, which has just increased in recent time. According to the Central Bank's data, $28bn went in less than a year, it is 3,4 times more than last year. In December, Central Bank Chairwoman Elvira Nabiullin made a forecast on capital outflow in 2018: it can amount to $16 billion, though earlier it was estimated at $10 billion. In 2016, the Central Bank says $19,2bn left Russia and the record outflow was in 2014 – over $151bn.

Watering hole during great drought

Business asked the Kremlin to enable to return money to Russia anonymously. This is why it is supposed that new state bonds can be different from standard. It will be possible not to reflect them in Clearstream and Euroclear international accounting systems, thanks to which authorities of foreign countries won't know about bond purchasers.

'Secret' bond rates are likely to coincide with the market – otherwise, there won't be any sense in these papers, according to the experts. With the Central Bank key rate's current level, the rate of new obligations can total 6,5-7%. In general, the experts think the new tool is needed to them to protect from the ban on purchasing Russian state bonds by foreigners.

  • Yaroslav Kabakov

    Yaroslav Kabakov Deputy Director General of Finam Investment Company

    Bonds are a very good idea. The new sanctions can seriously affect those who want to invest in the Russian economy. The ministry of finance doesn't have bans on purchasing federal bonds yet, but the situation can change early next year already. A big volume of the capital has moved from Russia in the last years together with the rehabilitation of the biggest banks. Considering the anonymity, Russian business will be interested in returning the money to the homeland.

  • Alla Dvoretskaya

    Alla Dvoretskaya economist, professor at RANEPA

    Narrow specialisation and orientation of bonds to some groups contradict the very idea of a security as a universal tool that is available for everyone and is sold with the same conditions for everybody. In addition, it will be technically difficult to provide anonymity of bonds. It's not very clear now how to do it and whether these obligations won't mix with common securities after several purchasers.

    The problem of the ban on investments of foreigners in Russian assets is better solved by developing domestic demand: to reorient Russian investors to Russian securities. It doesn't happen instantaneously but it's possible. For instance, with the Central Bank's efforts, it can finance banks, the banks, in turn, can purchase Russian federal bonds more actively. Of course, it's not very correct, but it's not the price one has to pay for isolation.

  • Yan Art

    Yan Art expert of the Financial Market Committee of the State Duma

    Our capital wanted to be returned by tax amnesty too, but it hasn't returned yet. Bonds are rather a reply to the version about stricter sanctions and the ban on purchasing federal bonds that was mentioned, not capital repatriation.

    30 or more percents of Russian state bond purchasers aren't residents. Non-residents have a good appetite. In addition, Russia has clearly met its financial commitments in recent time. For us, the idea of the distribution of sanctions to this zone isn't mortal but painful. This is why new obligations are an answer and probably a correct answer.

    Sanctions are a political occurrence. Curiously, they affect the financial market that was traditionally considered like a watering hole during a great drought like in Kipling's The Jungle Book, not military technologies in recent time. This principle worked even during the Cold War, but now it has been infringed.

By Artyom Malyutin