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How the US Department of the Treasury brought down the Russian capital market

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How the US Department of the Treasury brought down the Russian capital market
December 27
09:00 2018

Few global bankers and investors thought that 2017 would be the last for the Russian companies in the capital market. At the beginning of 2018, these companies demonstrated keen interest in Eurobonds. Those, showed little confidence in the debt obligations, were preparing for an IPO.

But this idyll was destroyed by the US Treasury that introduced sanctions against public companies. In the tough world of geopolitics, no one is insured against vulnerabilities and shocks.

Despite the fact that 2019 will not be the best for companies located in Russia, risk tactics in conditions of high volatility can bear fruit.

 

Ministry of Finance of the Russian Federation is a hard nut to crack

The largest Russian borrower in the form of the Ministry of Finance chose 2018 to “borrow, no matter what”. This tactic has justified itself. Its field tests were carried out in March 2018. At that time, the poisoning of the Skripals caused a scandal. Nevertheless, the Department managed to carry out two dollar tranches of European bonds worth about $ 4 billion. The main buyers were Britain and the States (this is surprising), their combined share exceeded 50%.

Other active actions by the Ministry of Finance were observed by the market in November. The political background was extremely dramatic – the situation with the Kerch Strait was at its peak. The moment for organizing the placement of loans was extremely unfortunate, but the controversy was overcome. The volume of new bonds amounted to about one billion Euros.

 

April burned all the bridges

From January to March, several Russian companies (for example, Gazprom, Alfa-Bank, RusAl, and others) managed to place their bonds. Few investors expected a big problem.

The sanctions that hurt Eurobonds were introduced in April. This step brought down the securities rate of Russian issuers. It didn’t make sense to borrow in such a situation, so many of them simply took a pause until the end of the year. Those who had a lot of liquidity were able to make a profit. They bought out some debts at a price below par.

A few years ago, China was very popular among the Russian banks. After the introduction of sanctions by the States and the EU, many borrowers were cut off from the global market. Because of this, the potential of Asian markets began to grow. Nevertheless, only RusAl has managed to place its securities here in the four years.

Only euro loans can compete with ordinary dollar bonds. The Ministry of Finance of Russia has already demonstrated the attractiveness of these securities that has increased with the dollar debt rising due to the Fed.

 

Transactions will be postponed indefinitely…

Although there was a little activity in the debt market, the stock market was in a complete lull. In early April, IBS was going to hold an IPO on the stock exchange in Moscow, but after the publication of the “black list” and the prediction of the consequences of the sanctions, it was decided to postpone the IPO. Nearly at the same time, the service Headhunter was about to become public. It was planned to hold an IPO on the Nasdaq exchange. Many companies were going to enter the market, but all the plans had to be postponed indefinitely.

The forecasts for the next year are very vague, since there are many factors that can very quickly change the situation on the market. Recently, geopolitics has greatly influenced the world finances. Potential buyers should assess the risks of investing in Russian companies carefully, because there are no guarantees that after the next package of sanctions their money will remain intact.

 

The material was prepared with the participation of Katya Gordon,
a leading analyst of the brokerage company CT Trade

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