CIS Sovereign Debt Report 2014: Borrowing To Decrease To $51 Billion
Primary Credit Analyst: Ana Jelenkovic, London (44) 20-7176-7116; [Link]@[Link] Secondary Contacts: Alexandra Balod, Moscow (7) 495-783-4096; [Link]@[Link] Trevor Cullinan, Dubai (971) 4372-7113; [Link]@[Link] Christian Esters, CFA, Frankfurt (49) 69-33-999-242; [Link]@[Link] Elliot Hentov, PhD, London (44) 207-176-7071; [Link]@[Link] Karen Vartapetov, Moscow (7) 495-783-4018; [Link]@[Link] Benjamin J Young, London (44) 20-7176-3574; [Link]@[Link]
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CIS Sovereign Debt Report 2014: Borrowing To Decrease To $51 Billion
Standard & Poor's Ratings Services projects that the six rated Commonwealth of Independent States (CIS) sovereigns will borrow an equivalent of $51 billion from long-term commercial sources in 2014. This would be a 10% decrease in long-term commercial debt issuance compared with 2013. We expect that $41 billion of total commercial borrowing will be raised in local currency. Some 30% (or $16 billion) of the sovereigns' gross commercial borrowing will be to refinance maturing long-term commercial debt (2013: $22 billion), resulting in estimated net commercial borrowing of $35 billion (see tables 1-3 and chart 1). While Georgia is no longer a member of the CIS--it withdrew in 2008--for purposes of comparison we are using the term CIS to denote the non-Baltic post-Soviet sovereigns. Consequently, we project that rated CIS sovereigns' commercial debt stock will reach an equivalent of $281 billion by the end of 2014, up by $28 billion (or 11%) from 2013. Adding in bilateral and multilateral debt, the total stock will reach $314 billion, a year-on-year increase of $23 billion (or 8%). We expect that outstanding short-term commercial debt will amount to just under $2 billion at year-end 2014. Overview We forecast a $6 billion (or 10%) decrease in rated CIS sovereign borrowing from commercial sources in 2014, compared to actual 2013 borrowing. We anticipate a significant decrease in gross commercial borrowing in 2014 in Ukraine because we expect that borrowing needs will have to be covered mostly by official sources. Absolute debt levels in CIS continue to increase. By year-end 2014, we project that total outstanding sovereign commercial debt in the region will have risen by $28 billion to $281 billion in nominal terms since last year. We rate six sovereigns in the CIS region: Azerbaijan, Belarus, Georgia, Kazakhstan, Russia, and Ukraine. While Georgia is no longer a member of the CIS--it withdrew in 2008--for purposes of comparison we are using the term CIS to denote the non-Baltic post-Soviet sovereigns.
We project that, during 2014, the share of commercial sovereign debt rated 'BBB' will stand just below 80% of total commercial debt (see chart 2). At the same time, the share of debt rated below 'BBB' is set to account for about 20%, including 17% as 'CCC' rated debt. If borrowing from bilateral and multilateral official lenders is included, we estimate overall long-term borrowing at $68 billion in 2014. Noncommercial official debt (bilateral and multilateral) as a share of total sovereign debt is set to reach 10% at year-end 2014, from 13% in 2013. According to our calculations, Ukraine and Belarus will face the highest debt rollover ratios (including short-term debt) of rated CIS sovereigns, reaching 12.4% and 16.5% in 2014 (see chart 3). The debt-rollover ratios for infrequent issuers with small but lumpy debt obligations can be very low if little or no debt matures in a given year and if they do not have a significant amount of short-term debt. The rollover ratios of sovereigns with a higher proportion of official debt tend to be lower, because official debt typically has longer maturities than commercial debt.
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CIS Sovereign Debt Report 2014: Borrowing To Decrease To $51 Billion
Our estimates are for the six CIS sovereigns we rate (see list in table 5). We focus on debt issued by a central government in its own name and we exclude local government and social security debt, as well as debt issued by other public bodies and government-guaranteed obligations. In terms of commercial debt instruments, our estimates for long-term borrowing include bonds (with maturities of more than one year) issued either on publicly listed markets or sold as private placements, as well as commercial bank loans. In addition to commercial debt, some of the estimates we use in this study include official bilateral and multilateral debt. We do not include government debt that may be issued by some central banks for monetary policy purposes. All reported forecast figures are our own estimates and do not necessarily reflect the issuers' projections. Our estimates are informed by our expectations regarding central government deficits, our assessment of governments' potential extra-budgetary funding needs, and our estimates of debt maturities. Estimates that we express in dollars are subject to exchange-rate variations. We expect that Russia--the region's largest economy, with GDP estimated at $2.2 trillion at end-2014 (nearly 10 times the size of the next largest economy, Kazakhstan)--will issue the largest share of debt in the region: $38.7 billion. Almost 100% of Russia's new borrowing will be commercial borrowing ($38.5 billion), which will account for 75% of CIS gross commercial long-term borrowing in 2014. A significant portion of the region's commercial borrowing will be in local currency (81%). We estimate that 80% of Russia's commercial borrowing needs will be issued in local currency. We currently do not expect any of the sovereigns in the CIS will be issuing international bonds. While we expect gross long-term borrowing in the CIS to increase by 8% to $68 billion, and gross commercial borrowing to increase in Russia, Kazakhstan, Georgia, and Azerbaijan, we anticipate that commercial borrowing for the region will actually decrease by 10% in 2014. This owes largely to our expectations that the majority of Ukraine's borrowing needs (over 70%, compared with 16% in 2013) will have to be covered by official debt. In our view, without official financial assistance, Ukraine will not be able to meet its debt service in a timely manner in 2014. For the purposes of this report, we view as bilateral debt the $3 billion that Russia provided to Ukraine in December 2013 (as part of a $15 billion financial support). We regard further disbursements under this support package as highly uncertain. Official borrowing continues to play an important role in the region, particularly for Belarus (official debt was 54% of estimated total debt at end-2014), Georgia (67%) and Azerbaijan (80%), although the latter has a very low overall debt level compared to the other two. Official borrowing will account for nearly 70% of these three sovereigns' gross long-term borrowing needs in 2014. Georgia continues to draw down on the $4.5 billion in multilateral aid committed following the 2008 war with Russia. The bulk of Belarus' multilateral financial support has been provided by the EurAsEc Anti-Crisis Fund and the Russian government. The financial support for Belarus, as well as the financial support offered to Ukraine (albeit currently uncertain to continue), underscores that Russia, the largest borrower in the region, is also an important lender. Not all the sovereigns in the CIS issue bonds for funding purposes. Kazakhstan and Azerbaijan run fiscal surpluses, and issue local currency domestic debt to attain market presence, and to support and expand local capital markets. Both sovereigns choose to save a portion of their oil revenue in their respective national oil funds, and cover the remainder of their expenditures through issuing local currency domestic debt.
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CIS Sovereign Debt Report 2014: Borrowing To Decrease To $51 Billion
Table 1
CIS Sovereign Commercial Issuance And Debt
(Bil. $) Gross long-term commercial borrowing Of which amortization of maturing long-term debt Of which net long-term commercial borrowing Total commercial debt stock (year end) Of which short-term debt Of which debt with original maturity greater than one year (% GDP) Gross long-term commercial borrowing (% GDP) Of which amortization of maturing long-term debt (% GDP) Of which net long-term commercial borrowing (% GDP) Total commercial debt stock (year end) (% GDP) Of which short-term debt (% GDP) Of which debt with original maturity greater than one year (% GDP) e--Estimate. f--Forecast. 1.1 0.7 0.4 8.0 0.4 7.6 1.0 0.6 0.3 6.1 0.4 5.6 0.9 0.5 0.4 4.9 0.4 4.4 1.0 0.8 0.1 7.8 0.9 6.9 2.1 0.3 1.8 8.2 0.7 7.5 2.7 0.4 2.3 8.4 0.2 8.2 2.0 1.1 0.9 9.0 0.1 8.9 2.1 0.8 1.3 9.4 0.1 9.4 1.9 0.6 1.3 10.3 0.1 10.2 2006 2007 2008 2009 2010 2011 2012 2013e 2014f 13 8 5 99 5 94 16 10 6 99 7 92 19 11 8 102 9 93 15 13 2 121 14 108 40 6 34 158 14 144 65 10 55 199 4 195 51 28 24 230 2 228 57 22 35 254 2 252 51 16 35 281 2 279
Chart 1
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CIS Sovereign Debt Report 2014: Borrowing To Decrease To $51 Billion
Chart 2
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CIS Sovereign Debt Report 2014: Borrowing To Decrease To $51 Billion
Chart 3
Table 2
CIS Gross Commercial Long-Term Borrowing
Bil. $ Azerbaijan Belarus Georgia Kazakhstan Russia Ukraine Total 2006 2007 2008 2009 2010 2011 2012 2013e 2014f Share of 2014 total borrowing (%) 0.5 1.6 0.0 0.6 10.0 0.9 13.6 0.5 1.2 0.0 0.6 11.5 1.9 15.7 0.4 1.5 0.5 2.3 14.6 0.1 19.4 0.8 0.0 0.0 4.5 9.7 0.0 15.0 0.1 1.3 0.1 3.8 26.3 8.4 40.0 0.8 3.1 0.2 4.7 46.9 8.9 64.6 0.0 0.0 0.2 3.7 36.1 11.4 51.4 0.1 2.8 0.1 5.2 33.0 15.3 56.5 0.3 1.5 0.3 5.4 38.5 4.8 50.8 0.6 3.0 0.6 10.6 75.8 9.4 100.0
Breakdown by foreign currency rating category BBB BB B CCC 11.1 0.0 1.6 0.9 12.6 0.0 1.2 1.9 17.3 0.5 1.5 0.1 15.0 0.0 0.0 0.0 30.2 0.1 1.3 8.4 52.4 0.2 3.1 8.9 39.8 0.2 0.0 11.4 38.3 0.1 2.8 15.3 44.2 0.3 1.5 4.8 87.0 0.6 3.0 9.4
e--Estimate. f--Forecast.
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CIS Sovereign Debt Report 2014: Borrowing To Decrease To $51 Billion
Table 3
CIS Total Commercial Debt At Year-End (Long And Short Term)
Bil. $ Azerbaijan Belarus Georgia Kazakhstan Russia Ukraine Total 2006 1.2 2.4 0.5 8.5 75.5 11.3 99.4 2007 1.7 3.5 0.5 6.8 77.0 9.8 99.3 2008 1.9 2.7 1.0 8.0 76.6 11.5 101.7 2009 1.8 1.1 0.6 8.9 88.5 20.3 121.2 2010 1.9 1.8 1.1 11.3 112.7 28.9 157.7 2011 2.2 8.9 1.3 14.0 141.8 30.7 198.9 2012 2013e 2014f Share of 2014 total commercial debt (%) 0.7 1.8 1.3 19.2 170.8 36.3 230.1 0.8 5.6 1.3 23.5 174.7 48.0 253.9 1.0 8.2 1.8 24.5 196.9 49.0 281.4 0.4 2.9 0.7 8.7 70.0 17.4 100.0
Breakdown by foreign currency rating category BBB BB B CCC 85.2 0.5 2.4 11.3 85.5 0.5 3.5 9.8 86.5 1.0 2.7 11.5 99.2 0.6 1.1 20.3 125.9 1.1 1.8 28.9 158.1 1.3 8.9 30.7 190.7 1.3 1.8 36.3 198.9 1.3 5.6 48.0 222.4 1.8 8.2 49.0 79.0 0.7 2.9 17.4
e--Estimate. f--Forecast.
Table 4
CIS Central Government Rollover Ratios And Debt Structure (% of total debt, including bi-/multilateral)
2013e L-T fixed-rate debt 75.1 42.5 75.3 52.2 98.3 83.3 2014f Rollover ratio (% of GDP) 0.7 3.7 3.1 0.8 0.5 4.4
(% of total debt) Azerbaijan Belarus Georgia Kazakhstan Russia Ukraine
Commercial debt 15.8 34.3 26.2 82.2 97.9 82.5
S-T debt 5.1 3.7 1.7 2.5 0.0 0.7
FC debt 84.2 90.5 84.1 17.8 24.7 56.7
Inflation-indexed debt 0.0 0.0 0.0 0.7 0.4 0.0
Bi-/Multilateral debt 84.2 65.7 73.8 17.8 2.1 17.5
Rollover ratio 11.5 16.5 9.2 5.1 5.9 12.4
Bi-/Multilateral debt 80.8 54.5 67.4 15.1 1.4 14.2
Breakdown by foreign currency rating category BBB BB B CCC e--Estimate. f--Forecast. 94.0 26.2 34.3 82.5 0.4 1.7 3.7 0.7 25.1 84.1 90.5 56.7 22.6 22.1 31.0 46.8 0.0 0.0 0.0 0.0 6.0 73.8 65.7 17.5 7.6 4.4 3.4 8.6 0.7 1.5 0.7 2.8 4.9 67.4 54.5 14.2
Table 5
CIS Sovereign Ratings*
Local currency ratings Foreign currency ratings Azerbaijan Belarus Georgia BBB-/Stable/A-3 B-/Stable/B BB-/Stable/B BBB-/Stable/A-3 B-/Stable/B BB-/Stable/B BBB+/Stable/A-2 BBB/Stable/A-2
Kazakhstan BBB+/Stable/A-2 Russia BBB+/Stable/A-2
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CIS Sovereign Debt Report 2014: Borrowing To Decrease To $51 Billion
Table 5
CIS Sovereign Ratings* (cont.)
Ukraine B-/Negative/B CCC/Negative/C *Ratings as of Feb. 27, 2014.
Related Research
Global Sovereign Debt Report 2014: Borrowing To Increase By 2.7% To $7.1 Trillion, Feb. 27, 2014 Sovereign Risk Indicators, Dec. 13, 2013 (interactive version also available at [Link] Lack Of Reform And Inefficient Energy Industries Constrain Growth For CIS Sovereigns, May 15, 2013 Under Standard & Poor's policies, only a Rating Committee can determine a Credit Rating Action (including a Credit Rating change, affirmation or withdrawal, Rating Outlook change, or CreditWatch action). This commentary and its subject matter have not been the subject of Rating Committee action and should not be interpreted as a change to, or affirmation of, a Credit Rating or Rating Outlook.
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