(Repeats April 25 story without changes)
* Companies find it tough to issue bonds or obtain loans
* Corporate bond sales four-fifths down on last year
* Analyst calls short-term debt 'Russia's soft underbelly'
By Sujata Rao
LONDON, April 28 Usually prolific borrowers on
global markets, Russian companies are finding their funding
lifeblood cut off by banks and asset managers who fear their
investments will get caught up in the standoff between Moscow
and the West.
With military tensions running high between Russia and
Ukraine and a looming threat of tough Western economic
sanctions, it is getting harder for companies to issue bonds or
obtain loans - a situation that could eventually threaten some
of them with default.
Corporate bond sales from Russia have ground to a
standstill, amounting to just $4.6 billion so far this year.
That is a fifth of year-ago levels and under 5 percent of what
emerging market firms have raised, according to Thomson Reuters
Worse still, it is a tiny proportion of the $150 billion or
so of the hard currency debt due to be repaid by Russian
companies in 2014
Some of that debt was taken out via loans, but the picture
there is no better than on bond markets.
Russian loans worth $34 billion mature this year but just $4
billion of this has been raised, according to data compiled by
Thomson Reuters Loan Pricing Corp.
For years, Russia has been a favourite credit for investors,
boasting an investment grade credit rating, half a trillion
dollars in central bank reserves, big cash-generating companies
and a debt ratio of just a third of annual economic output.
But in the minds of investors, all that is now overshadowed
by the threat of sanctions. They could include freezes on assets
or money transfers, restrictions on exports or even a bar on
holding Russian companies' stocks and bonds, they fear.
"The first call one has to make is the political one. The
political turmoil and the possibility of sanctions make everyone
cautious on holding Russia. The companies' fundamentals and cash
balances are a secondary issue," said Hakan Enoksson, head of
fixed income at RBC Wealth Management.
Enoksson says he has had no exposure to Russian debt since
early March and does not plan any in the near future, given the
fear of more losses as more investors exit.
Already, U.S. sanctions on businessmen such as Russian
Railways boss Vladimir Yakunin and oil tycoon Gennady Timchenko
have prompted a selloff in the dollar bonds issued by their
companies as investors fear reputational damage.
Gas company Novatek for instance, where Timchenko has a
stake, has seen the yield on its 2016 dollar bond
rise to 5.36 percent, the highest since December 2011, almost
double where it was at the end of last year.
Yield spreads on Russian companies' dollar bonds have
spiralled across the board this year.
The implication of all this? A major funding crunch, or even
a series of defaults, unless markets pick up soon.
Standard Bank analyst Tim Ash terms Russia's short-term debt
- what's maturing in the coming year - its "soft underbelly".
"I think this debt will be increasingly difficult to
refinance if, as seems likely, relations with the West further
deteriorate over Ukraine, as the sanctions list is expanded and
few foreign institutions are willing to finance Russian
entities," Ash said.
END OF THE AFFAIR
All this marks a major hiatus in a decade-long love affair
between Western investors and Russia's corporate sector, which
has seen companies - oil and mining firms as well as telecoms
and banks - chalk up overseas debt of around $650 billion.
They now account for over a tenth of the main emerging
corporate bond index, JPMorgan's CEMBI.
Even now, the default threat is not immediate - data
compiled by various banks shows most big Russian companies have
cash balances that are up to three times the value of short-term
debt repayments. Prominent exceptions include diamond miner
Alrosa and oil major Rosneft, research from
There are also expectations that Russia's government will
help companies avoid default, as it did during the 2008-2009
global crisis. Crucially though, it could be less willing this
time to ensure Western investors get paid.
"I'm looking at all the Russian companies we hold in terms
of their total debt, how much short-term debt is maturing and
what is their free cash position," said Okan Akin, an investment
strategist for fixed income at U.S. asset manager
"At the end of the day, if sanctions are imposed it is not
clear if the Russian government would step in to help companies
to repay debt."
Fund managers such as Samantha Lamb at Standard Life in
London are also reluctant to dump Russia entirely - she holds
bonds from Gazprom and Vimpelcom for
instance, noting they will not need external funding for the
next year or so.
But with lenders reluctant to engage, companies may
increasingly have to run down their coffers. State development
bank VEB was this week forced to repay maturing debt worth $2.5
billion, rather than refinance it with a fresh loan.
Another bank, VTB, will be forced to repay a $3.13 billion
due in July, bankers said, describing a rollover of the loan as
"out of reach" for the company.
Meanwhile Standard & Poor's decision on Friday to cut
Russia's rating - placing it on the brink of becoming a junk
credit - will make borrowing even more difficult and costly.
"If Russia goes to junk, that would have consequences for
the private sector," said Cristian Maggio, an analyst at TD
Securities. "Every company rated above would be cut to the same
rating. That could trigger pretty sharp capital outflows."
(Additional reporting by Carolyn Cohn; Editing by Mark