Looming debt repayments by Russian companies are now central to discussions of Russia’s ability to weather the financial shocks caused by low oil prices and western sanctions, but the picture is more complex than commonly believed.
Despite last week’s agreement aimed at ending the war in Ukraine, the sanctions are expected to remain for the foreseeable future, perhaps for years if the Ukraine deal fails to lead to a durable peace, leaving Russian companies largely cut off from western financing, Reuters reported.
As long as western banks refuse to lend, many analysts assume the state will need to help companies repay their $550 billion in foreign debts. The whole debt burden “has to all intents and purposes been transferred to the national balance sheet”, analysts at London consultancy Trusted Sources said in a recent report.
Pessimists therefore worry that even Russia’s $375 billion in central bank foreign exchange reserves will eventually run out. At the very least, sizeable foreign debt repayments add to the strain on the balance of payments, weighing on the ruble. But other analysts say these fears are overblown: the debt burden may be far less than it appears on paper, and companies also have huge assets that can help shoulder the burden.
Heavy Burden?
According to central bank data, Russian companies and banks need to repay $109 billion in foreign debt in 2015, a heavy burden at a time when low oil prices have sunk export earnings and Western sanctions have stemmed capital inflows.
These sanctions are widely believed to prevent companies from refinancing foreign debts by taking out new foreign loans. But official figures tell a surprisingly different story.
Last year, net private sector debt repayments amounted to around $40 billion, or less than half of the $100 billion which the central bank said fell due, or implying the rest was refinanced or rescheduled.
Even in the fourth quarter, after western sanctions were tightened, the size of net redemptions was only around half of debts falling due.
That suggests that many “foreign” debts are really debts to fellow Russians operating from offshore.
“Some part of the debt, around 40-50 percent, was related to recycling of Russian capital: money originally flowing away from Russia and then coming back as loans,” said Alfa Bank economist Natalia Orlova.
This bullish view is backed-up by bottom-up analysis of the how much major companies owe to western creditors. Data compiled by VTB Capital showed that the 15 biggest debtors had to repay only $45 billion in syndicated loans and Eurobonds this year, and $38 billion next year.
