European Union and U.S. sanctions jeopardize funding for Russian companies, which have tapped international capital markets for more than $600 billion in debt and equity since the country emerged from its 1998 default.
Russian businesses have about $165 billion in U.S. and European bonds and more than $100 billion in offshore syndicated loans currently outstanding, according to data compiled by Bloomberg. Whether banks based in China, which remains friendly with President Vladimir Putin’s regime, can replace that lending remains to be seen.
The sanctions against Russia “will likely force a further contraction in domestic credit growth and hence the economy,” said Alexander Moseley, senior portfolio manager in New York with Schroders Plc, which oversees $100 billion in fixed-income assets. “Asian debt and equity markets are probably not able to substitute entirely for curbed access to the dollar and euro markets.”
The European Union today joined the U.S. in prohibiting Russian state-owned banks from selling shares or bonds in the West in an effort to force Moscow to end support for rebels in eastern Ukraine. The EU measures, endorsed today by representatives of national leaders, will take effect when the legal texts are published on July 31.
International lenders to VTB Group, Russia’s second-largest bank, were waiting for the announcement of EU sanctions before deciding to approve a $1.5 billion loan, according to three people with knowledge of the matter. ING Groep NV, which lost an executive in the downing of Malaysian Air Flight MH17 in Ukraine on July 17, was among the initial group of lenders.
The crisis in Ukraine escalated in February, when protesters ousted their pro-Russian president. Putin seized control of Crimea in March, triggering the first round of sanctions. Clashes between pro-Russian militants and Ukrainian military in the eastern part of Ukraine have continued.
Russia will cope with financing itself in the short term, and probably also in the midterm, Michael Ganske, head of emerging markets at Rogge Global Partners Plc in London, where he helps manage $8 billion in developing-nation bonds and currencies, said by e-mail. “I hope that Putin gets the message and that all sides go back to rationality and sit down at a table.”