This time Vladimir Putin will have to use all resources. PR machine faced an impossible task. She will represent a major defeat of the Kremlin outside of Russia as a triumph.
In General, Moscow has used to submit adverse developments in their own country to the West as a success. But this time it is almost impossible to display the debacle of Russia in the financial market not as a crushing defeat.
What happened? For the first time since the introduction of anti-Russian sanctions Moscow last week began producing dollar-denominated bonds. With this long-announced action Putin wanted to show the world that Russia is a world power still, and in the financial markets, and at the same time stock up on the necessary hard currency reserves.
But from the promotion the show of force didn’t work out. The Ministry of Finance on Monday, sheepishly admitted that was not found in Western or Asian development Bank for the sale of securities and the sale will be held on its own.
Passivity in the market was programmed
The state Bank VTB, which consists in the sanctions list, should place securities among the investors. Even worse. For sale Moscow failed to find a Western field organizer who would put paper to investors. Partners had to open an account in Moscow, which received debt instruments.
That is, passivity in the markets has been programmed. In order to find a sufficient number of investors, VTB had to offer not only a high interest rate, but extend the sale for one day. If it initially planned to receive three billion, then the volume was reduced to 1.75 billion. And on Thursday when bonds finally were posted, the stock exchange reacted to the lack of interest. Usually, after a major release are observed lively auction. But still not found an institution that would be engaged in placing of bonds.
Difficulty obtaining hard currency reserves does not come on time. Because the hope that the situation will improve on another front, in these days of melting.
Lately I had the impression that Western sanctions imposed over the Ukrainian conflict, soon will be partially cancelled. The EU should discuss new sanctions in July. For example, the Federal government has recently signaled that it no longer considers the full implementation of the Minsk agreements as preconditions for lifting sanctions.
The Kremlin changed tactics on the go
Suddenly, however, Tokyo began to receive other signals. At the summit “the big seven” gathered in Japan stated that a hard line towards Moscow will continue until the full implementation of the peace plan in Eastern Ukraine.
The Kremlin reacted immediately. Retaliatory sanctions against the West will be extended. Prime Minister Dmitry Medvedev said that the ban on the import of Western food will be extended until the end of 2017.
Also for this reason, the Kremlin tried to smooth over the disaster with the placement of dollar-denominated bonds. It was said that in total the volume of orders amounted to more than seven billion dollars, more than 70 percent of the issued bonds received by foreign investors based mainly in London. This is a definite sign of trust.
When the Finance Ministry was unable to name any specific names, and no known Western investor has not confirmed that he is the buyer, Moscow on the move began to change tactics. The head of the Russian financial Agency Konstantin vyshkovsky suddenly accused the West and in particular Washington in targeted disruption of the bond issue.
The West through the “telephone terror” dissuaded banks and investors from participation in the issue. But we proved that we have our own financial institutions to deal with the issue of loans. We will bet on it in the future, vyshkovsky said Bloomberg.
Americans use their dominance on the exchange
In the markets of the arguments of the Kremlin had no effect. “Moscow wanted to turn the issue of loans in a big PR show and to show the West that the sanctions are weak,” says Tim ash (Tim Ash), strategist at Nomura. In his opinion, this absolutely did not happen. “Even the small amount of emissions and a significant increase in interest rates speak volumes”.
Indeed, the risk premium for dollar denominated bonds amounting to as much as 2.6 percentage points, the last time in 2013, it was only 1.9 percentage points. Even worse. Moscow had to offer for loans by 0.5 percentage points more than in the comparable dollar-denominated bonds already listed on the markets. It shows alarming symptoms of the present bonds.
Financial markets have become a battleground for former adversaries in the Cold war, Russia and the United States. First of all, the Americans are using their dominance in the markets, to put pressure on Moscow. Because, in General, Russia the sale of the bonds does not violate the sanctions.
The country itself is not included in the sanctions list, and banks and investors allowed to participate in the issue and transfer money to the Russian state. But Washington clearly conveyed to Western banks, the need for restraint.
Banks have little resistance
Also allow you to trade Russian securities, that is, the agencies conducting these operations, have nothing to fear. However, Putin will probably be able to use the obtained dollars to support companies who are in the sanctions list.
Thus, the Kremlin would gallantly to circumvent sanctions. To prevent this especially much like the United States. Washington warned banks from participating in the issue. “Only a few banks have dared to go to any transactions that did not support their governments, even though that was so attractive to a large Commission from the placement of bonds,” says ash.
The Kremlin urgently needs access to the capital markets to reduce the budget deficit. According to forecasts by rating Agency Fitch, the budget hole this year will grow to five percent of GDP. It is the worst performance since 2010.
Although the oil price rose again to about $ 50, observers believe the figure of $ 70 a critical mark for stability in Russia. In addition, the country continues to hamper the rapid outflow of capital. Only in the first quarter of the company and the banks out of the country the currency with a volume of seven billion dollars.