Russian banks and companies, facing a credit crunch this year as Western sanctions bite, are becoming increasingly desperate to tap alternative forms of funding including the domestic bond markets and Asia’s capital markets.
Locked out from international debt markets, Russian firms are in a race to meet $55bn in redemptions due by the end of the year, with $30bn due in December alone.
But the bigger problem remains another financing crunch looming in 2016 and 2017, as firms in the metals and mining, real estate, and construction sectors struggle to meet their debt maturities just as the broader strain on Russia’s balance sheet is at its greatest.
The vast majority of these payments are owed by a tiny handful of elite domestic blue-chip energy and industrial firms, international bankers told Emerging Markets.
In the short term, Russian firms have other options. Some Russian banks are turning inward to the domestic bond market for succour. Sberbank and Gazprombank are making plans to issue foreign currency debt in the domestic market, following in the footsteps of Vnesheconombank and its leasing arm.
But rouble domestic bonds will only ever be a temporary salve, said analysts, and are unlikely either to attract international buyers, or to cover lenders’ funding needs.
Lending to SMEs and retail borrowers will also plummet as dwindling pools of available capital are corralled by leading state firms, “squeezing the only parts of the economy that are actually still growing,” said Charles Robertson, chief economist at Renaissance Capital.
Meanwhile, state-run commercial lenders desperate for dollars have turned to the central bank for long and short term swaps, while the criteria used to gauge repo collateral have been broadened.
ASIA NO SAVIOUR
Robertson expects the Russian government to direct the country’s twin sovereign wealth funds to channel cash into the maw of key state companies. Russia also boasted the world’s fourth largest capital reserves of $475bn at the end of September.
But the Russian government, which is already tapping into reserves to shore up its plummeting currency, cannot afford to dip into the central bank’s stock of reserves for more than one or maybe two years.
“Even the central bank admits it can’t rely on drawing down its reserves,” said Odrej Schneider, senior economist for emerging Europe at the Institute for International Finance. “It has to find an alternative solution.”
Yet it is not clear what those options might be. The government has in recent months made clear its desire to tap Asian lenders for dollar funding. Yet desire has constantly bumped up against hard reality.
“I’d be surprised if Asia was able to accommodate even one-twentieth of the $55bn” Russian firms need this year, said a leading Asian debt banker.
“Clearly one or two [Asian] countries could get behind Russia in a big way if they wanted to, but I doubt they would want to be seen by the US and European governments to be doing that,” he noted, adding that there was “not such a huge pool of available capital anyway”.
To add to the pain, capital flight is set to speed up again in the final three months of the year, taking total outflows in 2014 to around $120bn, predicts the IIF’s Schneider. Russia’s foreign exchanges reserves will dip below the $400bn mark by the end of the year.