Russian firms face funding crisis

Usually regular borrowers on global markets, Russian companies are finding their funding lifeblood cut off by banks and asset managers who worry their investments will get caught up in the stand-off between Moscow and the West. According to Bloomberg data, corporate offerings of foreign-currency bonds since the Crimea incursion have fallen by 69% to $7.1 billion so far this year from the same period last year.  With military tensions still running high between Russia and Ukraine and the ongoing imposition of tough Western economic sanctions, it has become more and more difficult for companies to issue bonds or obtain loans, a situation that could eventually threaten some of them with default.

 Russian gas producer Gazprom plans to start investor meetings at the end of September to test the market for a possible Eurobond issue. However, Russian companies were frozen out of the Eurobond market after the annexation of Ukraine’s Crimea peninsula in March triggered sanctions from the US and EU, with the latest penalties announced in recent weeks. 

Gazprom, Russia’s dominant gas producer, is preparing the sale of about $1 billion in foreign-currency bonds this autumn. Gazprom’s euro bond due July 2018 has fallen dramatically this quarter, pushing the yield up significantly. Gazprom might be able to raise financing in Asia, where investors are not as concerned by EU and US sanctions.

For years, Russia has been a favourite target for investors, benefiting from an investment grade credit rating, half a trillion dollars in central bank reserves, big cash-generating companies and a debt ratio of just a third of annual economic output. However, in the minds of investors, all that is now overshadowed by the imposition of sanctions, include freezes on assets or money transfers and restrictions on exports.

The US published its most recent lists of individuals and companies hit by travel bans and asset freezes on 12 September. The EU and US have also targeted certain key sectors of the Russian economy that are closely connected to the ruling elite. Russian state banks are now excluded from raising long-term loans, exports of dual-use equipment for military use in Russia are banned and future EU-Russia arms deals are banned. There is now an EU-US ban on exports of some oil industry technology and services, though gas remains unaffected.