Russians need to move quick to get ahead of sanctions
With the inauguration of US president-elect Joe Biden in January will come increased expectations of further sanctions against Russian figures and corporates. Russian issuers should take advantage of the rally initiated by Biden's election performance and follow their sovereign into bond markets to raise cash while the going is good.
When Russia entered the bond market last week after a year away, observers described its €2bn outing as opportunistic — a last-minute attempt to grab cash in as the market rallied in the wake of the US election and then positive news about coronavirus vaccines but before the US Thanksgiving holiday on November 26, when liquidity traditionally dries up like so much overcooked turkey.
Other Russian borrowers should show similar opportunism, especially those under US government scrutiny.
After all, there is a clear need for cash. For all the good news about vaccine trials, the pandemic is still rampant and the economic damage it has already wrought will last well into next year. All that is without the increased threat of sanctions from a new US president.
Biden, who in the past has labelled Russia's president Vladimir Putin “soulless”, will face increased pressure from the Democrats to exert pressure on Russia, which was seen to have enjoyed an easy ride under his predecessor, Donald Trump.
Just last month Biden criticised Russia, calling it a regime “so paranoid that it is unwilling to tolerate any criticism or dissent”, following the poisoning of Russian opposition politician Alexey Navalny.
With the Republicans accused of having taken a relaxed approach to allegations of Russian interference in US politics, many believe it is only a matter of time before the revitalised Democrats assert themselves.
Biden pledged in August on Twitter that: “Unlike Trump, I’ll defend our democratic values and stand up to autocrats like Putin.”
If that is indeed the case, Russian oligarchs and borrowers alike could soon fall under new sanctions similar to those of recent years that limited their access to capital.
Biden is likely to spend at least the first six months of his presidency, some believe, focused on domestic policy and tackling the pandemic. That gives issuers a short but accessible window to raise funding.
Sanctions against Russia from the US and the EU in 2014 after the annexation of Crimea drastically hindered their market access. In 2013, Russian issuers sold 51 dollar bonds. In 2015 they sold five.
Russian international bond issuance has never truly recovered.
Many believe Russian companies and the sovereign are in a better financial position than they were in 2014 but the coming years will prove extra challenging for borrowers all over the world as they try to outlast the pandemic and its economic damage.
Despite the recent rally, rates are still ultra-low. Access to capital is good too for emerging market borrowers. As the sovereign proved last week, now is the time to borrow.