When sovereign debtors issue bonds, the “use of proceeds” clause tends to be mere boilerplate.
“General budgetary purposes” usually covers it — although bondholders (those who bother to read the contract) will sometimes just have to hope that means something like servicing existing debts, rather than servicing the president’s daughter’s limo.
Similarly, the “general corporate purposes” line in a state enterprise’s government-guaranteed debt will usually be taken to mean just that, and not something worryingly niche, like arming a small navy. (It happens.)
They’re sovereigns. You’re not supposed to be too insistent about what they do with the money.
Times have changed though. Or at least they have for Russia. Read more
It’s official: Ukraine has defaulted on $3bn in bonds it owes to the Russian government.
No one, including Russia, should be surprised, because Ukraine could do so confident in the knowledge other creditors, including the IMF, wouldn’t mind.
Indeed, while the die was cast when the IMF executive board agreed to change its position on lending to countries that owe money elsewhere, the real conclusion to draw may be about the evolution of an institution conceived to give only brief assistance to governments. Read more
Martin Wolf was fuming about Russia on Wednesday — incensed specifically about its stance towards Ukraine’s attempted debt restructuring. He really doesn’t like the fact that Russia’s refusal to join August’s $18bn deal with private bond holders will block Ukraine’s access to IMF money, promising to collapse the country’s economy.
Along the way, Wolf notes that there’s a solution on the table here, albeit one that Russia is unlikely to accept. It comes from Adam Lerrick of the American Enterprise Institute — a man with some form in coming up with elegant solutions amid sovereign debt crises. (See Iceland, Greece and also Argentina.)
Here’s Lerrick’s detail on Ukraine, along with a table for Putin and pals… Read more
Where did Russia’s 2014 crisis really come from?
City University’s Anastasia Nesvetailova has penned a fascinating paper looking at the question in the context of the country’s growing aspiration to reposition itself within the global economic balance. Read more
All those San Francisco meetings paid off.
Franklin Templeton and other private creditors will agree to swallow a writedown on their Ukrainian bonds. Cutting a fifth off bond principal, it’s much less than many expected. Bond prices were rallying hard at pixel time.
Then there is the issue of Moscow. Since Russia’s said no about restructuring its own Ukrainian bond. Read more
She’s a little busy with Greece at the moment. But just under two weeks after Christine Lagarde read the IMF equivalent of the riot act to Ukraine’s biggest bondholders over its debt restructuring…
They’ve responded. See below for the full open letter from Ukraine’s creditor committee on Wednesday: Read more
And so to the US Department of Justice’s indictment on Wednesday of nine Fifa officials, alleging a RICO conspiracy, wire fraud, money laundering, etc…
The indictment alleges that, between 1991 and the present, the defendants and their co-conspirators corrupted the enterprise by engaging in various criminal activities, including fraud, bribery and money laundering. Two generations of soccer officials abused their positions of trust for personal gain, frequently through an alliance with unscrupulous sports marketing executives who shut out competitors and kept highly lucrative contracts for themselves through the systematic payment of bribes and kickbacks. All told, the soccer officials are charged with conspiring to solicit and receive well over $150 million in bribes and kickbacks in exchange for their official support of the sports marketing executives who agreed to make the unlawful payments. Read more
On May 28, Ukraine will pay $88m in interest on its $2.25bn bond due 2022.
On June 20, it will also pay a $75m coupon on that $3bn bond owed to Russia.
Well, we say ‘will.’
This might get in the way first: Read more
Back in April, five leading owners of Ukrainian bonds formed a committee to negotiate a restructuring with their debtor – and avoid losing money on their approximately $10bn principal in the process.
Now count the names in this release on Monday… Read more
The English-law bonds in Ukraine’s debt restructuring are a bit more local-law than bondholders might realise. How can Ukraine use that to get a deal? Here’s an interesting idea… Read more
Update: Seems we were right to regard this as curious…
Late on Thursday the IMF walked back on the idea the Russian bond is official debt, per Reuters: Read more
All it took was 11 days — and one schtum Kremlin spokesman — to make people wonder recently just how strong and secure a ruler Vladimir Putin really is.
They might want to look inside his Ukrainian bonds next. Read more
From RBS’s Alberto Gallo and team:
Gallo is, selectively, very bearish (not on India though, natch) for the obvious reasons: Read more
This installment in our occasional and disjointed series into the risk of balance-sheet driven currency crises in EMs — based on the hidden debt that lurks beneath — features a new if well flagged villain: oil.
The broad question as ever is: have the majority of emerging markets still got manageable foreign currency external debt levels? And do they rule themselves out as candidates for a self-fulfilling currency crisis? Even when dark debt is taken into account?
Tl;dr: Yes, with a few exceptions. Read more
Once upon a time there was a magical land called Ru, where the roads were paved with oil and the houses were built from kitsch gold blocks. Because its capital glistened with a red petroleum hue, it became known to all around as the wonderful Crimson City of Ru.
There, all the residents rejoiced night and day safe in the knowledge their needs would forever be catered to. Why? Because the Wonderful Wizard of Ru, known by some as “Ru the great and the terrible”, would see to it that the kingdom was always defended from its greatest enemy: the Wicked Witch of the West.
Ru was the most wondrous place in the world. Read more
It’s a good job the London housing market is indestructible, otherwise the collapse of the Russian currency might be cause for concern in Belgravia. After all, Russians were buying one in every five “super-prime” properties this year.
That stat comes via Knight Frank, who consider £10m-plus pied-à-terres to be super prime. In the six months to October, 21 per cent of the high end sales closed by the estate agent went to Russians.
Infographic of the golden postcodes after the jump. Read more
For those of you who, like me, slept through the CBR’s attempt to sledgehammer the cumbling rouble back into some sort of shape by hiking 10.5 per cent to 17 per cent…
Remember when breaking 60 was a thing? (Update at 0700ish: The rouble is up 6.2 per cent in early Tuesday trading to 60.27 per dollar) Read more
**10.5 per cent to 17 per cent**
Click to enlarge for the Central Bank of Russia’s emergency rate hike at 1am Moscow time — surpassing both the Turkish central bank’s hike in January this year and the Bank of England’s 500bps of moves on one day in 1992. Lamontsky.* Read more
Take another 100bp puny market!
Oh… Read more
Excuse, courtesy of Deutsche’s Jim Reid…
Briefly back to the Oil theme, the effect of the recent slump continues to have a negative impact on the Russian Rouble. The currency was down as much as 6.6% yesterday versus the dollar before paring back some of those intra-day losses to close around 4.5% lower on the day (at 51.65). The currency has now declined 30% since the end of September. Russia’s 5yr CDS widened a further 26bps yesterday to 344bps whilst the 10y government bond yield finished 15bps higher at 10.76%. The moves also come on the back of an announcement by the Finance Minister Siluanov last week that capital flight may reach $130bn in 2014 – the most since 2009.
Meet the real reason for this post, from a Russian corner of the internet, via Katie Martin: Read more
Dunno what we’re talking about?
Read the otherworldly (and exclusive) story from Sam Jones: Object 2014-28E – Space junk or satellite killer? Russian ‘UFO’ intrigues astronomers. Read more
Ukraine will probably end this year with public debts over two-thirds the size of its economy. We won’t know the exact figure until March when official statistics come out, nor if those statistics will be able to count the GDP of the separatist east.
But it is not looking good. We thought this rated a reminder.
Because the President of Russia certainly hasn’t forgotten about it — or the unusual clause inserted into the language of a $3bn bond Ukraine owes to his government: Read more
What’s an oil power to do when the commodity it owes its power to is on the wane?
One strategy, of course, is to devalue your currency so as to help the competitiveness of whatever exports you have left, and focus on the so-called strategy of import substitution – buying more of your own stuff and pretending that, heh, you just don’t care. As Deutsche Bank’s Yaroslav Lissovolik notes on Friday it is a strategy that has worked for Russia in the past, namely in 1998 and 2008. Read more
1. A large mythical creature known to operate in FX markets with the explicit intention of shattering upstanding and well-managed currencies like bitcoin, the rouble and the naira. If found to display extreme speculative dumping behaviour, defences must be organised by the champions of the superior currency zone so as to scare the wunderbeast away. These defences usually involve feeding the BearWhale large amounts of unwanted inferior dirty currency until it can physically consume no more and withdraws to its BearWhale cave. A successfully slain Bearwhale is usually cause for much jubilation and festivity within the defending community.
Back in March, when one US dollar still bought you 36 Russian roubles, we noted how the Kremlin’s attempt to publicly trash-talk the dollar by threatening to drop it as a reserve currency if and when the US was to impose sanctions was largely a propaganda tactic deployed to confuse the economically ignorant about the reality of who was really dependent on whom.
(As if Russia’s dependence on dollar reserves was ever a US Achilles heel. Quite the contrary, it’s always been Russia’s.)
From our point of view it was all a desperate measure to stave off a currency crises in the making, and obscure the fact that Russia’s CBR was losing control (given that even rate hikes were proving ineffective at curbing the rouble’s slide). Read more
С начала года ЦБ для поддержания курса рубля потратил $68 млрд. Полторы Олимпиады улетело в пустоту.
— Alexey Navalny (@navalny) October 30, 2014
From a summary of Russia’s proposed new budget, by Free Exchange:
The budget shows how much trouble the Russian economy is in—and how unwilling the government is to face up to reality. Read more
. . .Which is an announcement by the Ukrainian Security Service on Thursday that it has opened an criminal investigation into just how Ukraine managed to sell $3bn of some curious bonds to Russia in the last months of Viktor Yanukovych’s government. Read more