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Russian Regions to Favor Bonds - ACRA

February 14, 2017 | ACRA

For the first time in five years, budget loans refinance debt instead of bridging deficit. At end 2016, the regions saw their debt to banks underperform their payables to budgets by RUB 157 bln, marking the first such instance since 2011. That said, not all of the regions have substituted their market debt with the budget one, particularly those with an unstable financial standing.

In 2017, repayment of budget loans is to exceed their issuance. This year, the scheduled budget loan repayment stands RUB 20–30 bln above the amount of new loans to be given out by the Federal Budget. However, reverse refinancing and the need to bridge deficits will once again change the structure of regions’ liabilities, and by end 2019, the share of market debt in their debt structure may run into 80%.

Short-term Federal Treasury loans have not abated regions’ need for bank loans. In 2014–2016, annual debt repayment and raising stood at around RUB 1 trillion, with spending seasonality and unavailability of Treasury loans each December creating an increased year-end demand for bank credit resources.

Regional bond placements may double in 2017–2019. The potential volume of regional bond issuance aimed at refinancing bank debt and budget loans may amount to RUB 250–300 bln a year in 2017–2019. Bonds look more attractive than bank loans, being cheaper at the longer end even for the most leveraged regions. Offering bonds instead of taking out loans may save borrowers 2–3% in annual debt servicing costs within this period.

Company: Russia

Full company nameMinistry of Finance of the Russian Federation
Country of riskRussia
Country of registrationRussia


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