Russian banks are stepping in to make up for a $17 billion hole in foreign loans to domestic companies as the Ukraine crisis narrows options for financing.
Loans in dollars extended by international lenders slumped to $7.9 billion in the first half of 2014, compared with $25 billion for the same period last year, according to data compiled by Bloomberg. While foreign financing plunged, corporate loans by Russian banks led by state-backed OAO Sberbank and VTB Bank, increased 8.4 percent to 24.39 trillion rubles ($712 billion) in the first five months of the year, central bank data show.
Russian companies are seeing their financing options shrink, with sales this year of foreign-currency bonds sliding almost 80 percent, amid investor concern sanctions against the country will be expanded over Ukraine. While local lenders are picking up the slack, Herman Gref, chief executive officer of Sberbank, said in June the industry faces an “acute” shortage of long-term ruble funding.
“Many companies that had to refinance upcoming maturities preferred to raise loans from state-controlled banks,” Denis Perevezentsev, an analyst at Moody’s Investors Service in Moscow, said by phone yesterday. “In the second quarter of 2014, in light of the worsening geopolitical situation and potential sanctions, western banks became more cautious in their work with Russian borrowers.”
The specter of industry-wide sanctions for Russia over Ukraine has quashed bond sales, stoked capital flight and forced the central bank to stump up an extra $58 billion to ease the cash crunch. Sentiment soured after President Vladimir Putin annexed Ukraine’s Crimea region three months ago.
VTB’s press office declined to comment when contacted by Bloomberg. Sberbank didn’t respond to a request for comment.
Companies faced limits on their funding from foreign sources in March and April and looked for alternative sources of financing, according to Alexei Simanovsky, first deputy chairman at the central bank.
OAO Lukoil, Russia’s second-biggest oil producer, is cutting spending to reduce dependence on international debt markets and plans to build a cash reserve of $30 billion over the next five years to guard against the risk of further disruption to capital markets, billionaire shareholder Leonid Fedun said in an interview last month.
OAO Sibur Holding, the nation’s largest petrochemical company, signed a two-year credit facility in April with Sberbank for as much as 27 billion rubles to refinance short-term debt, according to a statement on the company’s website.
In February the company had asked banks to propose terms for a five-year unsecured loan of about $1 billion, according to three people familiar with the negotiations, who asked not to be identified because the terms are private. The company’s press office declined to comment when contacted by Bloomberg.
OAO Novolipetsk Steel doesn’t plan loans for refinancing because market conditions “aren’t optimal” and the company has “significant liquidity” to service its obligations, spokesman Sergey Babichenko said by e-mail yesterday.
The ruble weakened 0.6 percent to 34.4965 versus the dollar as of 8:09 p.m. in Moscow. The yield on Russia’s dollar debt due March 2030 fell two basis points to 4.22 percent, paring its increase this week to 13 basis points.
With the violence between pro-Russian separatists and government troops unabated in Ukraine’s east, the foreign ministers of Germany, France, Ukraine and Russia agreed at a meeting in Berlin two days ago to work for a comprehensive cease-fire by July 5.
“The current situation was caused by and is largely linked to the situation with Crimea and Ukraine,” Dmitry Poliakov, an analyst at Sberbank Investment Research in Moscow, said by phone. “That’s why Russian banks took on the burden of financing the real sector of the economy.”