Moscow has long sought to undermine the west's sanctions regime by accessing its capital markets / Photo from dengi-info.com
Brussels is urging European banks to steer clear of Russia's first sovereign bond issue since the imposition of western sanctions over Ukraine, creating fresh doubts about the viability of the offering, according to The Financial Times.
Although the EU's sanctions do not explicitly prohibit purchases of Russian government debt, EU officials have privately echoed Washington's warnings that the proceeds from an offering could be misused, according to two people familiar with the guidance, The Financial Times wrote on Monday.
If this qualified warning convinces European banks to avoid the sale, Russia could be forced to abandon its first foray into capital markets since the annexation of Crimea in 2014, dealing a financial and political blow to the Kremlin. "It is clear that they don't want us to take part," said one banker familiar with the guidance.
"We are being discouraged."
In spite of the warnings, Russia's deputy finance minister, Sergei Storchak, insisted last month that enough foreign banks were still on board to proceed. Meanwhile, Andrei Belousov, an economic aide to Mr Putin, said he did not expect the Treasury's campaign to drive up Russia's borrowing costs.
Moscow has long sought to undermine the west's sanctions regime by accessing its capital markets while, at the same time, aggravating divisions between member states over the policy.
But there has so far been little shift in a sanctions policy that has enjoyed strong backing from Angela Merkel, the German chancellor. After extended discussions on Monday, EU foreign ministers reaffirmed that relations with Moscow rested on the implementation of the Minsk ceasefire accord in Ukraine.
The bond issuance — expected to come in the form of a $3bn, 10-year eurobond — comes at a time when the government's finances have been hit by recession and a plunge in world oil prices.
Yet the lack of outright sanctions on the Russian state mean bondholders are unlikely to face trouble from regulators if the money is eventually used to support sanctioned entities, according to bankers and senior European officials, The Financial Times wrote.
In private guidance to banks, EU officials have merely urged the institutions to be mindful of the risks of bonds being used to circumvent sanctions and to take precautions, including insisting on clauses to stop the proceeds being diverted to sanctioned entities.