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Russia: 'Road Show' Promotes First Government Bond Issue Since 1917

  • Robert Lyle

Washington, 20 November 1996 (RFE/RL) - Russian First Deputy Prime Minister Vladimir Potanin is in New York today, leading the final presentation to Western investors on Moscow's upcoming Eurobond issue, Russia's first international financing since the 1917 Bolshevik revolution.

The bond issue, expected to total close to $500 million, will be officially priced and offered on international markets within the next few weeks, according to a spokesman for the American investment house J.P. Morgan, which is co-managing the bond offering.

Selling the bonds is a major step for Russia to begin raising private capital to finance longer-range costs of government operations.

The bonds will be offered only to "sophisticated investors," according to bond market analysts in the United States. This limitation to large investment portfolios, insurance companies and mutual funds -- and not to the general public -- allows a large company or a foreign government to sell bonds in major cities throughout the world without having to meet stringent local securities laws.

The basis and background for the bonds is presented to mutual fund managers, pension fund managers and portfolio managers from insurance companies in meetings known as "road shows." Russia officials have been making these presentations in all the major Western European and Asian capitals over the past month and a half. The presentation in New York is the last of the series. Deputy Prime Minister and Finance Minister Alexander Livshits led the presentation last week in London.

Livshits told the meeting in London that Moscow's aim is to sell the bonds at the lowest possible interest rate. "We will not borrow on very high interest levels," he was quoted by the "Financial Times" newspaper as telling the closed meeting.

American analysts who have attended many of the sessions around the world say the bond issue has generated enormous interest. They say there have been large turnouts at all of the meetings and that as many as 100 top investors are expected at today's session in New York.

The bonds will be denominated in dollars, but the level of interest they will pay has yet to be determined. Experts in the United States and Great Britain suggest that since this is a first issue for Russia, there are no "clear benchmarks" for setting the interest rate. However, they note, while Western investors will expect a "risk premium" -- extra interest to compensate for perceived political risks in investing in Russia -- they do not expect the rate to be that much higher than is normally paid on global markets.

Reporters in London quoted some participants leaving the "road show" last week as saying Livshits did not present a good argument for lower rates. However, they said, there is a "strong novelty aspect" to the issue and because of that "investors will want to buy it."

Experts say that may be why Potanin, until recently a private banker himself, was picked to lead the presentation in New York -- to make sure the series of "road shows" ends on an upbeat note, especially because it is in New York.

Potanin is also to hold a meeting with some World Bank officials later today to review Russia's general relations with the bank. Among the issues to be discussed, according to bank officials in Washington, is Moscow's progress in a coal industry restructuring program.

The program is underwritten by a World Bank loan of $500 million. The first tranche of $250 million was released this summer, the second drawing of $250 million is conditioned on the completion of certain parts of the coal restructuring program, expected sometime before the end of the year.