The FINANCIAL -- A market-led rationing of foreign capital is the most immediate threat to the Russian corporate sector from the crisis in Ukraine, Fitch Ratings says.
The FINANCIAL -- A market-led rationing of foreign capital is the most immediate threat to the Russian corporate sector from the crisis in Ukraine, Fitch Ratings says. However, a detailed analysis of the liquidity profiles of Fitch-rated Russian companies shows that the sector as a whole is well-placed to withstand a protracted reduction of foreign capital inflows.
Since the start of the crisis credit default swaps on Russian bonds have widened by over a third, reflecting growing risk perceptions, and we have heard anecdotal evidence that Western banks are looking at the country with a more critical eye. While this response from international investors has been muted so far, it does highlight the risk that foreign capital could become scarce if the crisis escalates. "We believe this is a more immediate risk than comprehensive trade or financial sanctions, which would come at a very high price for both Russia and the rest of the world," Fitch Rating says.
On the whole, Fitch-rated Russian companies have fairly robust financial profiles and most have sufficient liquidity to withstand a complete closure of the refinancing market for the rest of 2014. Our analysis indicates six out of 55 would have a liquidity gap in 2014. The most notable is Sibur, a regular international borrower, which was in the process of negotiating a refinancing of its bank lines as the crisis started. Given Sibur's standing in the Russian economy Fitch Rating would expect it to retain access to the Russian bank market, borne out in early April by its closure of a RUB27bn loan from a Russian bank.
The others which will need to refinance in 2014 are Miratorg, Sodrugestvo, Russian Helicopters, Transtelecom and Federal Passenger Company. A further fifteen companies would need to refinance in 2015.
Russian banks have the ability to replace some foreign borrowing. However, annual corporate debt repayments to foreign lenders are around USD70bn-90bn, which is close to our 2014 forecast for Russian banks' new corporate lending of USD90bn-100bn, so banks would only be able to refinance a portion of corporates' foreign borrowing given their other commitments.
The state, with its USD486bn of foreign currency reserves, would have much more firepower to support the banking system and corporate sector. First Deputy Prime Minister Igor Shuvalov has said the government would be more selective in providing support this time than it was following the 2008 crisis. But Firch Rating believes there is a strong propensity to support national champions and strategically important companies, especially in cases where foreign creditors would receive a claim on the shares of these entities if they defaulted.