Despite high expectations, the Kremlin was unable to attract any western banks for the sale of dollar-denominated bonds to investors. This, according to the western media, is not how Russian President Vladimir Putin imagined Russia’s return to the financial market.
“For the first time since the introduction of western sanctions, 10-year securities will be sold in dollars. Because of this, Putin wanted to show the world that Russia is a global power in the financial markets and can quickly obtain the necessary supply of dollars. However, his plan failed,” Die Welt reported.
The news agency further reported that in February, the US government and the European Union warned companies against undertaking these financial transactions with Russia. However, the official sanctions do not forbid the banks from buying bonds at auction. Russia can also borrow money. The sanctions also do not prohibit cooperation with private banking institutions and companies. Die Welt reported that Russia can then use these loans to support troubled companies who are on the sanctions list.
“Russia certainly wanted to attract the western banks to quietly release the securities. Only large banking institutions such as Goldman Sachs and Deutsche Bank & Co can place the bonds with investors in a short period of time. Russia also wanted to show that their business dealings with western institutions are far more important than the geopolitical strife in their country. The attempt to convey this message failed miserably. The western banks fear that they will receive billions of dollars’ worth of fines from regulatory authorities if they do business with Russia,” the news agency continued.
The fact that Russia is attempting to accelerate the sale of the bonds to investors shows that the Kremlin depends on the capital markets. According to Die Welt, they seek to use them to cover their budget deficit. According to forecasts by Fitch rating agency, the budget deficit will rise to 5% of the economic production this year. This is the largest decline since 2010. One of these reasons for this is low oil prices, as oil is one of the most significant exports of the country.
Die Welt says that the economy will probably continue to decline in 2016.