Russia on brink of financial crisis as showdown with West escalates

Monday, April 14, 2014
By Paul Martin

Country’s private companies shut out of global bond markets, raising prospect that they may need state support

By Ambrose Evans Pritchard
14 Apr 2014

Russia is at increasing risk of a full-blown financial crisis as the West tightens sanctions and Russian meddling in Ukraine pushes the region towards conflagration.

The country’s private companies have been shut out of global capital markets almost entirely since the crisis erupted, causing a serious credit crunch and raising concerns that firms may not be able to refinace debt without Russian state support.

“No Eurobonds have been rolled over for six weeks. This cannot continue for long and is becoming a massive issue,” said an official from a major Russian bank. “Companies have to roll over $10bn a month and nothing is moving. The markets have been remarkably relaxed about this, given how dangerous it is.

Russia’s greatest vulnerability is the bond market,” he said.
Lars Christensen from Danske Bank said Russia’s economy is already in recession and may contract by as much as 4pc if there are fresh sanctions, risking a repeat of events in 2008 when capital flight set off serial defaults and a banking crisis.

“There is a credit squeeze under way and a significant shock to the cost of capital. This could prove to be as bad as the Lehman crisis for Russia. Capital outflows have already been $65bn so far this year, compared to $135bn in late 2008,” he said.

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