Russia not so strong says Fitch
by Izabella Kaminska
The great emerging markets sell-off continues with Hungary, Turkey, Poland and Argentina taking starring roles. Ukraine and Belarus meanwhile are both in talks for IMF loans. But how are things looking for Russia?
Not so good according to Fitch:
…despite the sovereign’s strong balance sheet and liquidity position, the impact of the global financial crisis and sharp drop in oil prices has brought Fitch’s long-standing concerns over Russia’s relatively weak banking sector, commodity dependence and heavy private sector external repayment schedule to the fore, exposing weaknesses in Russia’s economic and credit fundamentals. “Trends in external refinancing and oil prices and measures being taken by the authorities to support the private sector will have an adverse impact on the sovereign balance sheet.
Russia’s exceptionally strong sovereign balance sheet underpins its rating, notably the buffer provided by foreign exchange reserves of USD531bn - the third largest in the world. This allows the policy authorities to provide the Russian corporate and banking sector with US dollar liquidity and financing without imperilling its own credit quality.
But:
Russia is also facing a second negative external shock - the recent sharp fall in commodity prices - which combined with falling inflows of foreign capital, will lower economic growth and pressure the credit quality of Russian banks and companies.
So while Russia’s sovereign status is likely to withstand any shocks, the private sector remains exposed. Shares have responded accordingly.
The fear is that the Russian private sector, which borrowed heavily from international capital markets to fund aggressive expansion at home and overseas, could make Russian markets very vulnerable.
Fitch estimates Russian banks and companies face some $80bn of medium- and long-term amortisation next year and the CBR estimates that total foreign debt payments due in the final quarter of this year are up to $40bn.
Already gas giant Gazprom, which only today reported a record Q1 profit of $10.1bn, said it may have trouble obtaining new loans and refinancing debts.
Bloomberg writes:
Gazprom and its subsidiaries have $55 billion in outstanding bonds and loans, according to data compiled by Bloomberg. The company is scheduled to repay $6.6 billion next year and $12.5 billion in 2010, the data show. The energy producer has already said it’s reviewing its spending program amid tightening credit markets and lower revenue expectations. It has laid out plans to spend more than $30 billion this year on new projects as output drops at mature fields in western Siberia.
Among those banks “aggressively” expanded into foreign markets is VTB, Russia’s second biggest lender. It owns banks across western Europe, including Germany, Austria and the UK. Today VTB said it plans to spend some $500m supporting its foreign units writes Reuters.
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