Russian

Old Russian Stocks and Bonds.
This page contains some information on the history of Russian government debt. There are brief descriptions of several bonds issued by Russian Imperial government. Several stocks and bonds issued by private Russian companies before the Revolution of 1917 are also described.
There are links to scanned images of the certificates. All images are in JPEG format.

The First Hundred Years
The first foreign loan in Russian history was obtained in 1769 by the government of Catherine II. At the time Russian government could not successfully sell an international bond issue directly to foreign investors due to a variety of factors: the lack of connection between Russian and international capital markets and the unfamiliarity of foreign investors with the prospects of the economy. For these reasons, the loan was placed through the Dutch investment banking firm Hope & Co. The following arrangements were made. The Russian government issued bonds to the investment bank. The face value of each bond was 500,000 Dutch guldens -- a very large amount at that time. Bonds with such high face value were not suitable for trading, and Hope & Co. issued bonds on its own behalf in smaller denominations, collateralized by Russian government obligations. Each bond issued by Hope & Co. was also signed by a representative of the Russian government stating that the bond is in fact backed up by the debt of Russian government. For its services Hope & Co. received a 6.5% placement fee. The firm arranged for a few more loans under similar terms. By the time of death of Catherine II in 1796, the total amount of outstanding international debt was 62 million Dutch guldens (41.5 million rubles).

Russian government relied on the money printing press to finance its expenditures. The continuous printing of paper money that could not be freely exchanged into copper, silver or gold coins created several problems. First and foremost was the inflation. In 1809 Speransky, with assistance from Count N.S. Mordvinov proposed a plan for reforming government finances, ''Financial Plan''. One of the proposed measures was consolidation of government debt, thus far existing in the form of paper currency. New long-term interest bearing debt was to be issued. Paper rubles received as payment for the new debt were to be retired from circulation and destroyed, thereby decreasing the supply of paper rubles in circulation. Speransky believed that more stable national currency would provide so badly needed foundation for national economic growth. The ideas expressed in the ''Financial Plan'' were reflected in the government decree (manifest) issued on February 2, 1810. This decree announced that all previously issued paper money are government debt, collateralized by all property of Russian Empire. It was also announced that further issuance of paper money is terminated and that the decision had been made to repay this debt by issuing internal interest bearing bonds. By the same decree the government raised taxes and fees in order to increase budget revenues.

The implementation of Speransky's ideas began very soon. In order to decrease the amount of paper money in circulation and thereby to put the monetary system in order, on May 27, 1810 Tsar Alexander I issued a decree (manifest) announcing internal bond issue in the total amount of 100 million paper rubles. The issue consisted of five parts, each in the amount of 20 million. The paper money raised as payment for these bonds was to be subjected to public burning. (At the time, the total amount of paper rubles circulating in the country was 577,510,900) The bonds had 6% annual coupon and 7 year maturity. The face value of individual bonds was 1,000 rubles and above. At maturity, the bonds were payable in silver rubles, at the exchange rate to paper rubles that prevailed on the maturity date. In the same decree the government announced that the deficit would no longer be financed through seigniorage. The placement of this issue failed. Due to the lack of long-term investment capital in the country, only 3.2 million rubles worth of bonds were sold. In addition, Russians were not accustomed to purchasing government bonds as an investment. They preferred to invest in bank demand deposits that paid relatively high interest (5% annual) and could be withdrawn upon request. The holder of a bond had a risk of capital loss when selling it prior to maturity on the secondary market.

In 1812 the army of Napoleon entered Russia and the Patriotic war began. The war required large outlays and the government could not continue to implement tight fiscal policy reforms proposed by Speransky. To finance the expenses of the war on the Russian territory, and later during the war campaign in Europe, in 1812 - 1815 Russian government continued to print currency and issued short term (one year) bonds in the amount of 6 to 10 million rubles. The bonds were repaid in paper rubles and had annual coupon of 6%.

In 1815 the war with Napoleon was won by the Russian army. Political prestige and influence of Russia were strong and in 1815 the government began restructuring its foreign (Dutch) debt. With the assistance of the investment bank Gope & Co. the government managed to arrange the delay of the debt repayment in full amount of 101.1 million Dutch guldens. The debt was repaid in full only in 1891. At the same time, the government began reorganization of domestic borrowing in accordance with the ''Financial Plan'' created by D.A. Gur'ev, the Finance Minister at the time. Beginning in 1818 one could lend money to the government and obtain 6% interest (the interest was later changed to 5%). The lender gave money and the details of the transaction, including the amount and lender's name, were entered into the State Book of Debt. This Book was established in 1817 and it existed until 1917. The lender also received a certificate issued by the State Commission on Debt Repayment. These loans were perpetual. The lender received interest payments but if the lender wanted to receive the principal back, he had to sell this security on the secondary market. Such sale was also recorded in the State Book of Debt and on the reverse side of the certificate. At the same time, in addition to the perpetual debt recorded in the State Book of Debt, Russian government made an attempt to issue long term bonds in the amount of 100 million paper rubles.

Gold Loans (Gold Bonds)

The war with Turkey (1877 - 1878) placed new spending requirements. New foreign loans were obtained and emission of money continued. Towards the end of the reign of Alexander II Russia had 4,885.9 million paper rubles worth of outstanding interest bearing debt, including railroad construction debt of 1,895.5 million rubles. Previously loans were issued mostly in connection with large military expenses, and partially for railroad construction. Beginning from the early 1880's the reasons have changed. The new Finance Minister N.Ch. Bunge planned to stabilize national currency by carrying out another currency reform. The need for currency reform came from the need for capital. Inflation, and uncertainty about the future rate of inflation, made investments in fixed income securities a risky proposition. At the same time, it was imperative to attract new investment, especially from abroad, to construct railroad network, needed by the emerging industrial economy.
Before conducting monetary reform the government carried out consolidation and conversion of internal and foreign loans. New loans were issued and exchanged for old loans. Often, the new loans had longer maturity and lower interest rate. In the years 1889 - 1894, 2,644 million rubles worth of outstanding bonds were converted into newly issued debt.		Government Bond. 1894 4% Gold Loan. 6-th issue. Certificate for 5 bonds (125 Gold Rubles each bond) - certificate is for 625 Gold Rubles. Large Image.

Government Bond. 1898. 750 Rubles. 3 8/10% Conversion Bonds issued by the State (March 1898) in exchange for the 1887 4.5% Mortgage Bonds of the ex-Association for Mutual Credit on Land-Property. Value is stated in rubles, German Reichsmarks, Francs, Pounds Sterling, Dutch Florins. The certificate shown is for 750 Rubles (1620 German marks = 2000 Francs). Coupons were paid in St. Petersburg, Berlin, Frankfurt, Paris (by Rothschild), Brussels, London, and Amsterdam. The bonds were redeemable at par within 81 years by semi-annual drawings which took place on March 31 and October 1 of each year. Every bond was provided with 24 half-yearly coupons and a talon for the renewal of the coupon-sheet. Large Image.

At the same time, the government issued new types of bonds - Gold Bonds, or Gold Loans. These bonds targeted foreign capital markets, including investors in France, Great Britain, Holland, Germany, Denmark, USA, and Canada. Previously, Russia issued bonds abroad through investment bankers. Russian government issued bonds in large denominations to one or several investment banks. These banks, in turn, issued securities to the public, fully collateralized by the government bonds held by investment bank. This structure, adopted during the first loan of 1769, remained unchanged until the mid-nineteenth century. Liberal reforms of Alexander III opened Russian capital markets to foreign investors, who actively traded securities issued by Russian public companies. One of the effects of such liberalization was better dissemination of information and better familiarity of foreign investors with Russian economic conditions. Hence, greater interest towards Russian government bonds.

The new situation allowed to place government bonds directly to foreign investors in their respective countries. At first, the government issued bonds in several separate currencies. For example, if the bonds were to be placed in France, they were issued in French francs, and coupons were also paid in francs. The drawback of this system was obvious - the issue was convenient for the investors in one country. In order to invest in franc-denominated Russian bonds British investor had to convert pounds into francs, purchase the bond, and then convert coupons back from francs into pounds.

In order to make Russian bonds more accessible to investors in different countries and to lower placement costs, the Ministry of Finance decided to issue more ''universal'' bonds. Another goal was to issue bonds that could be repaid both in foreign currency, or if they were owned by a Russian investor, in rubles. The Ministry of Finance was headed by energetic, experienced, and clever men - I.A. Vyshnegradsky (held the post from January 1887 until August 1892) and later by S.Yu. Witte.

Economic conditions were favorable - steady economic growth both domestically and abroad, and no military conflicts. These conditions allowed consolidation and conversion of government debt. Gold Loans were structured to satisfy the following requirements: the bonds could freely circulate inside and outside of Russia, and the bonds could be traded simultaneously in several countries (and thus, in several currencies). The face value of each bond was stated in several currencies: Gold rubles, French francs, Deutschemarks, British pounds, US dollars, and Dutch guldens. The exchange rate between the currencies was determined based on their respective gold content. The government entered into agency agreements with banks in different countries. These banks carried out coupon payments, and at maturity - principal payments. There were several banks in France (including Credite Lyonese), Germany, London (Bearing & Co.), Holland (Gope & Co.), and New York (Kidder Peabody & Co.). If coupons were paid in St. Petersburg, then the payment was made either in gold coins or in paper rubles, at the current exchange rate between paper and gold rubles. For the holders of the bonds this system provided a hedge against inflation, and was a welcomed measure. Gold Loans were traded in several countries. These securities could freely cross Russian borders - foreign investors could buy them both outside and inside Russia; the same applied to domestic (Russian) investors. Thus the distinction between ''foreign'' and ''domestic'' loans was no longer rigid.

In the years 1889 - 1896 Russian government issued 4% Gold Bonds (Gold Loan) in the total amount of 332 million gold rubles. The bonds were issued in series: 1st series in 1889, 2nd, 3rd, and 4th series in 1890, 5th series in 1893, and 6th series in 1894. Also, 3.5% Gold Bonds were issued in 1894, and 3% Gold Bonds were issued in the years 1891 - 1896. The bonds had somewhat unusual face values, set at 125, 625, 3125, and 187.50 rubles. This was done mostly for the convenience of the French market, since France was major creditor to Russia and 125 rubles corresponded to 500 0francs, 625 rubles - to 2.500 francs, and 3,125 rubles - to 12,500 francs.

Gold Loans were a major success. The issue of 1894 was oversubscribed - the orders exceeded the number of the bonds for sale 50 times. The bonds were placed among the subscribers in proportion to their orders. Gold Loans provided the funds to recall, and thereby convert and consolidate, several outstanding bonds:

1) 263 million marks of the 1877 5% Foreign Loan;

2) Two 5% British-Dutch loans of 1862 and 1864;

3) 5% Loan of the 7th issue of 1862 (15 million pounds);

4) 5% Bonds of Kharkov-Kremenchug portion of the Kharkov-Nikolaev Railroad.

A portion of the proceeds from the 3.5% Gold Loan of 1894 was used to convert the bonds of the railroads that were purchased by the government: Poti-Tiflis Railroad, Tambov-Kozlov Railroad, Donetzk Railroad, and several other railroads.

After the monetary reform of 1895 - 1897 paper rubles became freely exchangeable into gold coins, and therefore the system of two currencies no longer existed. One paper ruble equalled one gold ruble in purchasing power. Thus, it was no longer necessary to designate the future bonds as ''Gold Bonds''. New issues of government debt were denominated simply in rubles and sometimes also in foreign currencies.

Collateralized Government Bond Issue [Written for Internet Page]
In 1902 Russia issued government bonds collateralized by the payments that Russia were to receive from China in compensation for the losses incurred in consequence of the Chinese disorders (Boxer rebellion in 1901). The annual payments on these bonds were in strict correspondence with the annual payments of interest and principal that were to be made by China to Russia. The full official title of this bond issue was "Russian 4% State Loan of 1902, issued for the realization of the remuniration payable by China to Russia."

The bonds were issued in the total amount of 181,959,000 rubles (= 393,000,000 Imperial German Marks, = 231,870,000 Dutch Florins, = 19,257,000 British Pound Sterling). The interest on the bonds accrued beginning on 19 December 1901 (1 January 1902). These bonds were "forever free of any Russian taxes".

Coupons were paid twice a year: on June 18 / July 1 and on December 19 / January 1. Coupons were paid in Russia, and by agents - in Berlin, Frankfurt, Amsterdam, and London.

1902 4% Government
Bond. Certificate
for 5,000 German
Marks. Large Image.

The value of each bond was stated on the certificate in German Marks, Russian Rubles,Dutch Florins, and British Pound Sterling. The 5,000 German Marks Certificate stated the value of 2,315 Rubles, 2,950 Dutch Florins, or 245 Pound Sterling.

The 4% 1902 Government Bonds had bearer certificates of several denominations. There were 22,000 certificates with denomination of 5,000 German Marks, 75,000 certificates with 2,000 German Marks denomination, 110,000 certificates with 1,000 German Marks denomination, and 46,000 certificates with denomination of 500 German Marks.

What about the principal repayment? Similarly to many other Russian government bonds, these bonds were recalled through random recall drawings. If a bond's serial number was drawn at such a drawing, the owner of the certificate surrendered the bond and received the principle (face value of the bond). These bonds were recalled by the government during the 39 years folloing the issuance, according to the recall schedule (published on the reverse side of each bond certificate). The recall drawings took place in September of every year, beginning from 1902. The payment to the owner of a recalled bond was made at the first coupon payment date following the recall drawing. The principal payment for the recalled bond was made by the same agents and in the same cities as the coupon payments. The Government promised (and this promise is printed on the bond certificate) that until December 19, 1914 / 1 January 1915 there will be no additional funds allocated by the government to the recall of these bonds, above the amounts already specified for the regular drawings. Also, the government promised not to re-purchase the bonds or to convert them, until that date.

The bonds could be presented for payment for 30 years following the date when they became due. The coupons stayed valid and could be presented for payment for 10 years following the coupon's payment date.

Please follow the link to my Russian Stocks and Bonds: Gallery page for brief description of additional bonds and images of the certificates. The Gallery page contains images of the following certificates (among others): 1902 4% Government perpetuity, the issue of the 5% Government Bond of 1906; Internal 5% Loan of 1914.

The Gallery page also displays several industrial stocks and bonds, as well as securities issued by banks. For example: Preferred Share Certificate of the Upper-Volga Society of Railroad Materials, 5% bond issued by State Nobility Land Bank.

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Last updated: 16 June 2002