Further refinancing of Belarus’ public debt requires new borrowings
<p> On 2 June, the Finance Ministry of Belarus said that in accordance with the intergovernmental agreement of 21 December 2020 on Russia’s state financial loan to Belarus, the Ministry of Finance received the second tranche of the loan in the amount equivalent to $0.5bn. </p> <p> On 13 May, the presidential ordinance “On Attracting External Government Loans” was issued. According to this document, the government was instructed to issue up to RUB100 billion worth of Belarusian government bonds on the Russian market in 2021-2023. Similar documents, adopted in 2019, provided for raising up to RUB30bn over two years. </p> <p> Commentary </p> <p> Under the terms of the intergovernmental agreement, the Russian loan is denominated in Russian rubles and cannot be used directly to support Belarus’ international reserves, as the Russian ruble is not part of the relevant IMF basket (the basket comprises the dollar, euro, yuan, yen, etc.). </p> <p> It is also worth noting that under the December intergovernmental agreement, the limit of resources from Russia is now exhausted. The document contained a condition for the allocation of no more than the equivalent of $1 billion to Belarus, of which half was received on 30 December 2020. </p> <p> The September agreements between Russian President Vladimir Putin and Belarusian President Alexander Lukashenko provided for a total of $1.5 billion, including $500 million through the instruments of the Eurasian Fund for Stabilisation and Development (EFSD). On 12 October 2020, the authorities signed an agreement to provide a financial loan from the EFSD to support the budget in the COVID-19 pandemic. The resources were received by the Ministry of Finance of Belarus on 16 October 2020. </p> <p> Overall, it can be stated that Belarus has already used up all financial resources under the September arrangements, with an unused balance standing at zero. Further refinancing of public debt requires new borrowings on foreign and domestic markets. </p> <p> Sovereign bonds denominated in Russian rubles and placed on the Russian market could become a new source of borrowing. </p> <p> On 18 May, Minister of Finance of Belarus Yuri Seliverstov said: “We had a go at the Western market last year, so there were no such plans for this year in principle. Now we have plans to enter the Russian market. As for Asia, it is an interesting but somewhat specific market, so we are still thinking how to establish cooperation.” </p> <p> As a reminder, on 16 December 2019, Belarus, represented by the Ministry of Finance and the Shanghai branch of the China Development Bank, signed an agreement on a term loan worth 3.5 billion yuan (the equivalent of $500 million). </p> <p> Also in 2018-2019, the authorities had plans to enter the Chinese debt market with panda bonds. However, on 2 July 2019, the head of the Ministry of Finance (at the time) Maksim Yermolovich confirmed that the entry into the Chinese market had been postponed by the authorities. </p> <p> Independent experts cited the insufficient rating of Belarus on the Chinese domestic issuer scale as one of the reasons for the cancellation of the panda bond issue. In 2018, the Chinese rating agency CCXI assigned Belarus a sovereign credit rating of 'AA+' with a stable outlook. However, in order to achieve the yield on the issue that the Belarusian authorities desired, a rating of at least "AAA" was required. </p> <p> In view of the above circumstances, as well as the growing sanctions pressure from the USA, the EU and Ukraine, experts assess the possibility of resuscitating the panda-bond idea as low, as the coupon rate on such bonds is unlikely to satisfy the authorities. The probability of a new loan from a Chinese state bank is somewhat higher. However, this probability is much lower than the probability of a successful sovereign bond placement on the Russian market. </p> <p> The Ryanair Athens-Vilnius flight debacle on 23 May and the EU’s subsequent reaction led to a collapse of USD-denominated sovereign Eurobond quotes in Belarus. As of June 3, 2021 the quotation of Belarus' Eurobonds on the Frankfurt Stock Exchange with maturity in February 2023 was 100.7% of the face value, with maturity in June 2027 - 100%, with maturity in February 2030 - 90.3%, with maturity in February 2031 - 91.2%. The coupon rates on these issues are 6.875%, 7.625%, 6.2%, and 6.378%, respectively. </p> <p> With such a combination of long-term bond prices (maturing in 2030s) and coupon rates, the Ministry of Finance of Belarus cannot expect to enter the operational Eurobond market, which would reduce or maintain the average interest payments on the government debt. An additional negative background is created by calls by some European politicians to ban the issuance of Eurobonds by Belarus in Euros. </p> <p> In early May, Fitch Ratings affirmed Belarus' long-term issuer default rating in foreign currency at "B" with a "negative" outlook. Fitch analysts justified their decision by low FX reserves of Belarus, restrained growth prospects of the economy, high exposure of public debt to foreign exchange risks, weak banking sector, high external debt and weak indicators of the quality of governance compared to countries with comparable ratings. </p> <p> At the same time, the total repayments of the government’s foreign currency debt in 2021 are considered manageable by Fitch and amount to $2.77bn ($880m was repaid in Q1 2021). Of the $2.39bn in external debt repayments, some 45% is payable to Russia, 17% to the EFSD and 22% to China. </p> <p> According to Fitch, the authorities will use $1.6 billion of foreign currency revenues from the budget and the Russian and domestic markets to cover FX liabilities. FX debt settlements account for a similar amount in 2022 and then increase to $3.5bn in 2023 due to the maturity of Eurobonds. </p> <p> </p>
2021-06-15
Primepress
Further refinancing of Belarus’ public debt requires new borrowings
On 2 June, the Finance Ministry of Belarus said that in accordance with the intergovernmental agreement of 21 December 2020 on Russia’s state financial loan to Belarus, the Ministry of Finance received the second tranche of the loan in the amount equivalent to $0.5bn.
On 13 May, the presidential ordinance “On Attracting External Government Loans” was issued. According to this document, the government was instructed to issue up to RUB100 billion worth of Belarusian government bonds on the Russian market in 2021-2023. Similar documents, adopted in 2019, provided for raising up to RUB30bn over two years.
Commentary
Under the terms of the intergovernmental agreement, the Russian loan is denominated in Russian rubles and cannot be used directly to support Belarus’ international reserves, as the Russian ruble is not part of the relevant IMF basket (the basket comprises the dollar, euro, yuan, yen, etc.).
It is also worth noting that under the December intergovernmental agreement, the limit of resources from Russia is now exhausted. The document contained a condition for the allocation of no more than the equivalent of $1 billion to Belarus, of which half was received on 30 December 2020.
The September agreements between Russian President Vladimir Putin and Belarusian President Alexander Lukashenko provided for a total of $1.5 billion, including $500 million through the instruments of the Eurasian Fund for Stabilisation and Development (EFSD). On 12 October 2020, the authorities signed an agreement to provide a financial loan from the EFSD to support the budget in the COVID-19 pandemic. The resources were received by the Ministry of Finance of Belarus on 16 October 2020.
Overall, it can be stated that Belarus has already used up all financial resources under the September arrangements, with an unused balance standing at zero. Further refinancing of public debt requires new borrowings on foreign and domestic markets.
Sovereign bonds denominated in Russian rubles and placed on the Russian market could become a new source of borrowing.
On 18 May, Minister of Finance of Belarus Yuri Seliverstov said: “We had a go at the Western market last year, so there were no such plans for this year in principle. Now we have plans to enter the Russian market. As for Asia, it is an interesting but somewhat specific market, so we are still thinking how to establish cooperation.”
As a reminder, on 16 December 2019, Belarus, represented by the Ministry of Finance and the Shanghai branch of the China Development Bank, signed an agreement on a term loan worth 3.5 billion yuan (the equivalent of $500 million).
Also in 2018-2019, the authorities had plans to enter the Chinese debt market with panda bonds. However, on 2 July 2019, the head of the Ministry of Finance (at the time) Maksim Yermolovich confirmed that the entry into the Chinese market had been postponed by the authorities.
Independent experts cited the insufficient rating of Belarus on the Chinese domestic issuer scale as one of the reasons for the cancellation of the panda bond issue. In 2018, the Chinese rating agency CCXI assigned Belarus a sovereign credit rating of 'AA+' with a stable outlook. However, in order to achieve the yield on the issue that the Belarusian authorities desired, a rating of at least "AAA" was required.
In view of the above circumstances, as well as the growing sanctions pressure from the USA, the EU and Ukraine, experts assess the possibility of resuscitating the panda-bond idea as low, as the coupon rate on such bonds is unlikely to satisfy the authorities. The probability of a new loan from a Chinese state bank is somewhat higher. However, this probability is much lower than the probability of a successful sovereign bond placement on the Russian market.
The Ryanair Athens-Vilnius flight debacle on 23 May and the EU’s subsequent reaction led to a collapse of USD-denominated sovereign Eurobond quotes in Belarus. As of June 3, 2021 the quotation of Belarus' Eurobonds on the Frankfurt Stock Exchange with maturity in February 2023 was 100.7% of the face value, with maturity in June 2027 - 100%, with maturity in February 2030 - 90.3%, with maturity in February 2031 - 91.2%. The coupon rates on these issues are 6.875%, 7.625%, 6.2%, and 6.378%, respectively.
With such a combination of long-term bond prices (maturing in 2030s) and coupon rates, the Ministry of Finance of Belarus cannot expect to enter the operational Eurobond market, which would reduce or maintain the average interest payments on the government debt. An additional negative background is created by calls by some European politicians to ban the issuance of Eurobonds by Belarus in Euros.
In early May, Fitch Ratings affirmed Belarus' long-term issuer default rating in foreign currency at "B" with a "negative" outlook. Fitch analysts justified their decision by low FX reserves of Belarus, restrained growth prospects of the economy, high exposure of public debt to foreign exchange risks, weak banking sector, high external debt and weak indicators of the quality of governance compared to countries with comparable ratings.
At the same time, the total repayments of the government’s foreign currency debt in 2021 are considered manageable by Fitch and amount to $2.77bn ($880m was repaid in Q1 2021). Of the $2.39bn in external debt repayments, some 45% is payable to Russia, 17% to the EFSD and 22% to China.
According to Fitch, the authorities will use $1.6 billion of foreign currency revenues from the budget and the Russian and domestic markets to cover FX liabilities. FX debt settlements account for a similar amount in 2022 and then increase to $3.5bn in 2023 due to the maturity of Eurobonds.