Revolutionizing Russian Capital Markets
The names Rouble Bond
Russia is back on the track. After the chaotic “nomenklatura capitalism” of the early post-Soviet years, through the debt default and rouble devaluation of August 1998, Russia is now firmly on the economic map, sitting as an equal among the rich and powerful Group of Eight.
The EBRD has long worked with all areas of Russian industry, helping to improve the business climate and to attract the foreign financing that Russia needs to flourish. But, just as importantly, the EBRD has been a tireless supporter of change to the financial sector and specifically to the financial markets, the life-blood of any successful industrial democracy.

Broadening the Market
The Bank has revolutionized Russian capital markets via its ground-breaking issues of rouble bonds, which have helped to broaden the funding base of the Russian market, establish a transparent benchmark for Russia debt and provide longer-term financing for the broad economy.
The Bank has now raised 19.5 billion roubles via bond issues, launching a two billion rouble Eurobond in January 2007, following three domestic bonds issued earlier in the local currency for a total of 17.5 billion. The switch to tapping the Eurobond market for roubles was made possible by further currency liberalisation moves in Russia in 2006. The Bank had raised funds in a local currency for the first time in 1994 with the issue of a Hungarian forint bond.
Despite many obvious benefits, raising money in the local currency is not an end in itself. Local currency bond issues alone do not stimulate market reforms. But they do go hand in hand with them.
“Local currency bond issues are not a panacea,” says Isabelle Laurent, the EBRD's Deputy Treasurer. “The market conditions have to be right first.”

Preparing the Ground
This includes the creation of an appropriate legal framework. The market also has to be equipped with indices against which to measure bonds. Preparing the ground can be a long process. In Russia it lasted several years.
The Bank has also been active here, working with the authorities to help create the laws covering such issues and playing a key advisory role in the development of the 2003 Securities Market Law that ultimately allowed international borrowers to raise money on the domestic market.
Once the background is right, the decision to issue domestic bonds becomes part and parcel of the EBRD's transition mandate, in this case “To stimulate and encourage the development of capital markets in its countries of operation”.

Building up MosPrime
Another vital preparatory element prior to actually issuing rouble bonds was the Bank's proposal and then support to Russia's National Currency Association to create the Moscow Prime Offered Rates (MosPrime), a transparent money market index which is Russia's equivalent of London's LIBOR.
By May 18, 2005 everything was finally ready and the EBRD launched a five billion rouble, five year Floating Rate Note, the first ever such issue by an international borrower.
The benefits were clear and manifold. The proceeds from the EBRD's rouble bond provided long-term funding for municipalities and companies that produce or provide services primarily for the Russian market, including small and medium sized enterprises, thereby allowing them to better manage their liabilities and avoid exchange rate risk.
The creation of the index served as a benchmark for all other foreign banks who would want to raise money and then lend in roubles.
A senior executive of Citigroup, which had jointly led the bond for the Bank, said at the time that the issue showed the EBRD remained at the forefront of the development of local currency markets in the region. The deal and its accompanying elements were “tangible proof of the Bank's commitment to Russia and the sophistication of its capital market operations,” said Citi's Charlie Berman.

First Syndicated Rouble Loan
The EBRD's second rouble loan, launched in the spring of 2006, demonstrated even more starkly the inherent logic of local currency issuance, coinciding as it did with the launch of the first ever syndication of a long-term rouble loan, for the Moscow power company, Mosenergo.