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Shrinking horizon

3 Dec 2014 By Pierre Briançon

Russia does not have an external debt problem. At around 37 percent of GDP – versus 1.5 to three times GDP, say, for developed European economies – it should be easily manageable. For Russian companies and banks, it’s a different story.

A 40 percent drop in crude oil prices in a year, a similar drop in the rouble, and the country’s financial isolation due to Western sanctions are threatening Russian companies and banks with a serious debt squeeze. The state will have to step in. And that will come at a price – even greater meddling, and for some even re-nationalisation.

Russia has to service $30 billion of debt this December, then $138 billion in the subsequent 18 months, according to the Central Bank of Russia. A paltry 2 percent of that amount is owed by the government itself. Non-financial companies account for more than 60 percent of the total, while most of the rest weighs on banks, including state-owned Sberbank, the country’s largest lender.


Moscow isn’t nearing default. And companies have some cash on hand, even though their debt in dollar terms has risen more than 60 percent since the beginning of the year. In theory some of them can benefit from the rouble’s devaluation, which makes Russian exports more competitive. But exporters of non-oil products are few and far between, so the positive impact of devaluation is in fact limited.

Russian banks, on the other hand, are about to hit a steep dollar wall. They have to refinance $50 billion by mid-2016. The central bank says it has $420 billion worth of foreign reserves. That could be used to fend off a major disaster, but the CBR is also trying to limit liquidity injections into the banking system, which it suspects of speculating on the rouble’s fall.

Part of those reserves is the $170 billion parked in the Russian government’s two rainy-day funds. But some of that money seems to be already committed, limiting the cash on hand.

The Russian government has hinted that it can endure another two years of sanctions. The falls of oil and the rouble are shrinking that horizon by the day.


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