• ACI Russia

08/07/1998 20:29:07 Emerging mkt debt sinks amid worst weeks of the yr

By Apu Sikri

NEW YORK, Aug 7 (Reuters) - Emerging market bonds are

ending this week having recorded one of the worst performances

of the year, analysts said.

Friday's capped the broad and sustained decline throughout

the week with an erosion of four to five points in some

benchmark securities.

Russia led the market lower, followed by Venezuela,

according to analysts.

The yield on Russia's benchmark PRINs <RUSPRIN=RR> rose by

a whopping 400 basis points to 1630 basis points from 1250

basis points at the start of the week.

Investor attention is increasingly focused on whether

Russia will be able to pay out outstanding short-term debt,

meet public expenditures and yet maintain enough dollar

reserves to defend the roble.

"As things stand, Russia could possibly face a shortfall

anywhere between $8 billion and $10 billion," said Paul

Dickson, senior sovereign strategist at Lehman Brothers Inc.

About $19.5 billion in short-term obligations, known as GKO

and OFZ bonds, are coming due before the end of this year. Many

foreign investors have taken ruble proceeds from maturing GKOs,

moved them into dollars and deployed them elsewhere, according

to analysts. This has dipped into Russia's external reserves.

If the trend continues, the republic could face a shortage that

would need to be financed either through bank borrowings or the

bond markets.

But bond investors don't have the appetite for another $2

billion to $3 billion in new Russian dollar-denominated debt,

analysts and investors alike said.

In Moscow, Russian Deputy Finance Minister Mikhail Kasyanov

seemed to back off from earlier statements that the country

could issue another $2 billion to $3 billion in new dollar

bonds. He said the amount was a ceiling on how much more the

country could issue and not a mandate for additional


Meanwhile, Michael Carter, the World Bank's country

director for Russia, told Reuters Television that the pace of

reforms would the most influential factor on market confidence

in the republic. "How much breathing room the market gives

Russia will depend on how quickly it is perceived to be moving

with reforms," Carter said.

In Moscow, Martin Gilman, the International Monetary Fund's

senior representative said that "we find the initial results of

what they're trying to do encouraging, but they're going to

have to work very hard this month so that these program

projections can be realized."

Russia's troubles "are unsettling investor sentiment for

all emerging markets," said Amy Falls, economist at Morgan

Stanley Dean Witter.

Meanwhile, in the broader market, Venezuela was among the

worst performers in Latin American credits. The yield on

Venezuela's global bonds due 2027 <VENGLB27=RR> widened to 1012

basis points from 790 basis points at the start of the week.

The price on the bonds dropped a whopping 7-1/4 points Friday

to 58 from 65-1/4 Thursday.

Analysts said the increasing prospect of a victory for

presidential candidate Hugo Chavez in elections in Venezuela

later this year is unsettling investors.

In other benchmark issues, Brazil's "C" <BRAZILC=RR> bonds

declined four points to close at 69-1/2.

(( - N.A. Treasury Desk; 212 859-1562;


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