New market funds that lack new sovereign debt have been given a break with Russia selling $3 billion worth of bonds this year. But this move by the Russian government could lead the flow of money directly to western state ran companies.
Just this month, Russia has invited banks to make a bid for managing a Eurobond. This development has excited debt fund managers who are looking for new investments. The issuance of bonds by Russia have been hit by Western sanctions on many state-owned firms like SberBank and VTB due to their involvement in the crisis in Ukraine.
Russia has not been spared also, it has borrowed $3 billion internally and sanctions are yet to be imposed. But even if the sale becomes legitimate, some experts say that it might carry some legal complications.
According to Greg Saichin, head of emerging debt at Allianz Global Investors, it is good to know before making any investment regarding the implications it will have on the law. He added that it is a very tempting deal since Russia has not raised up any demands of new debts over the past years. But the issue of sanctions and how will people do around with the business is the real factor.
According to JP Morgan, there is no problem with the issuance of the bond, they themselves have already managed one in the case of Gazprom. They added that the sanctions do not have any implications for the US market. But the fact will always remain that bank buyers and managers will have no control of the proceeds and how it will be used.
Camille Abousleiman, a partner at law firm Dechert, suggested that there are a lot of ways to secure any uncertainties. One is to restructure the transaction to make sure that asset managers will have a sort of control regarding the proceeds, making sure that it will not be used in a restricted manner.
But according to Oleg Bychkov, a securities lawyer at Moscow, he doubted that this provisions will give comfort to the investors' concerns. He added that budget spending in Russia is not transparent and investors will not know how the money will be used because of the emerging political issues of the country.
