Businesses are no longer interested in government currency bonds

The Finance Ministry sold state currency bonds worth USD 41 million, against anticipated USD 50 million.

The window of opportunity for placing foreign currency bonds in foreign markets has closed. In the domestic market businesses’ demand for various government securities has been filled. Private persons remain the only potential foreign currency source for the Finance Ministry.

State currency bonds were regarded as one of the potential sources to refinance foreign debt in 2013 – 2015. In spring 2013 international bond market situation was favourable for Belarus to place its securities. The yield on Belarusian five-year bonds dropped to 6%, which is lower than the yield on foreign currency bonds issued in the domestic market for businesses and individuals. Belarus failed to take advantage of that situation. Now the situation in the financial markets has changed and bonds’ value has dropped below par, closing the possibility of borrowing on international markets at reasonable rates.

On July 23^rd, 2013 Finance Ministry held an auction for the primary placement of government currency bonds (103^rd edition). The bonds’ maturity period is 1,310 days at fixed 7.25% pa. The issue was worth USD 50 million, but for the first time in 2013 it was not sold out (only USD 41 million) and will be put on sale again on July 29^th. Market seems saturated. In anticipation of the placement, the National Bank has created favourable conditions for foreign currency bonds potential buyers by freeing up banks’ funds allocated for the bonds purchase from the requirement to form compulsory reserves. However bonds’ maturity period (3.5 years) is a restrictive factor for the banks due to dynamic domestic market changes in Belarus.

Private persons remain the only potential buyers of state currency bonds. All previous issues have been sold out. Certain slow down with sales relates to longer maturity period. The best for the population is a one-year maturity period, however that creates certain technical problems for the Foreign Ministry and is contrary to the Ministry’s will to borrow funds for a longer period. The problem has a potential solution – to enable the secondary bond market for individuals – which would expand the potential investors’ pool. But this option requires some technical and regulatory measures that currently are not feasible. Namely, currency bonds placement during vacation period is ineffective.

Thus, the number of potential instruments which could help to refinance foreign debt has reduced. Since private individuals are the only potential investors, it is possible that in the autumn the finance ministry will release the new currency bond issue. The government is still in the need of funds and has virtually no guaranteed funding sources left.