Russia equals debt auction record, bracing for oil price cap impact

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MOSCOW — Russia’s finance ministry equalled its record for the largest volume of OFZ bonds sold at a single debt auction on Wednesday, continuing to borrow heavily as an oil price cap that could squeeze export revenues kicked in.

The ministry sold 750 billion roubles ($11.9 billion) of a new floating-rate OFZ bond that matures in August 2034.

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A source with knowledge of the matter said that Russia was building up reserves of capital with record borrowing to shield itself from the impact the oil price cap, which came into force on Monday, might have next year.

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The Kremlin on Wednesday said Russia was still working out how to respond to the imposition of the $60-per-barrel cap set by the G7 nations, the European Union and Australia in an attempt to limit Russia’s ability to finance its military operation in Ukraine.

With Russia selling a further 58.8 billion roubles of OFZ bonds at two other auctions, the total daily volume of 808.8 billion roubles fell marginally short of the single day record of 823 billion roubles hit on Nov. 16.

On both days, floating-rate bonds raised the majority of funds.

The finance ministry is offering high premiums, which it has said allows it to maximize volumes raised. It has now exceeded its quarterly borrowing target more than 16 times over.

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Russia is diverting cash to support its military campaign in Ukraine, with surging domestic security and defense spending set to cause funding for schools and hospitals to be slashed next year.

“We forecast high demand at auctions as banks still have a huge liquidity reserves,” said Georgy Vashchenko, deputy director of Freedom Finance Global’s research department.

“The finance ministry has covered its borrowing needs for the year, but could continue to borrow a lot, as long as the market conditions for this are favorable,” he added. ($1 = 62.8500 roubles) (Reporting by Alexander Marrow in Moscow and Darya Korsunskaya in Tbilisi; additional reporting by Jake Cordell and Maxim Rodionov; Editing by Louise Heavens, Alex Richardson and John Stonestreet)