Russia: RUB May Get A Boost From De-Facto Easing In The Fiscal Rule

The handover of a 50% equity stake in Sberbank from the central bank to the government is apparently designed in a way that results in lower FX purchases on the market and higher budget spending, which is a de-facto easing in the budget rule. Given the known parameters, the scheme may result in an improvement of our FX view by USDRUB 0.5-1.5.

Sale of CBR's stake in SBER to Minfin will result in higher budget spending and lower accumulation of state savings...

The Russian Finance Ministry and central bank (CBR) released details on the upcoming sale of CBR' 50% stake in Sberbank (current total market cap is RUB5.6 tr or US$88 bn) to the government, which according to media sources, will be taking place from April 2020 till mid-2021, and will potentially result in lower net FX purchases conducted by CBR on the local market.

  • According to the official statements (so far only Russian language text is available), the CBR will sell its 50% stake stake at the market price (currently it is RUB2.8 tr or US$44 bn, but the actual sale price will be determined based on the weighted average price for the 6 months preceeding to the first day of sale) to the National Wealth Fund (NWF), the state savings fund with assets of US$171 bn (including US$45 bn accumulated in 2019 and to be officialy incorporated into the fund in mid-2020).
  • In order to make that purchase, the NWF will have to use its liquid FX assets. Currently the NWF has RUB1.6 tr in illiquid RUB assets, while the remaining US$152 bn (including US$45 bn yet unaccounted for in the official statistics) are liquid FX assets.
  • The statement by the Central Bank of Russia suggests that it will mirror the upcoming decline in the FX portion of NWF (which represents the government's FX deposit with CBR) with the gross sales of FX on the local FX market over the course of 3-7 years. The statement makes no indication whether the entire sum of transaction (~US$44 bn) will be translated into the FX market. To remind, in accordance with the budget rule, the CBR conducts regular FX purchases for the Finance Ministry, which now will be lowered after netting with gross sales related to the Sberbank (SBER) handover.
  • According to unnamed top officials quoted by the Russian media, the CBR will eventually return RUB 1.3 tr out of the proceeds back to the Finance Ministry - partially fulfilling the requirement to that CBR must transfer 75% of its annual profit to the budget. That sum will be used to finance additional social spending announced by President Putin and costing the budget an extra RUB0.4 tr in 2020 and RUB4.1 tr in 2020-24.     
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The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.  more

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