Moscow has been gradually ostracized from global funding

“Russia has become completely uninvestable,” Vincent Mortier, chief investment officer of Amundi First Asset Management in Europe, admitted during a conference to his clients. There is no longer a market in Russia. (Photo: 123RF)

PARIS – “speculative” public debt, the stock market is closed, international investors are leaving in a hurry … A week after the imposition of Western sanctions against the invasion of Ukraine, the smell of Russian financial sulfur smells.

“Russia has become completely uninvestable,” Vincent Mortier, chief investment officer of Amundi First Asset Management in Europe, admitted during a conference to his clients. He asserts that “there is no longer a market” in Russia.

The downgrade of Russia’s debt by rating agencies to the speculative investment category has pushed the nail on the penalties: Moody’s, Fitch and SP Global now consider that Moscow will likely not be able to repay its debt.

Agencies are monitoring a possible escalation of Western sanctions and are not ruling out a further downgrade of Russia. However, the lower this rating, the less confidence the lenders have in the country and the less ability to borrow money at reasonable interest rates.

Russian media reported that Moscow did not pay the interest owed to foreign investors, who have government debt in rubles, on Wednesday, and has continued to pay investors in foreign currency for the time being.

Rating agencies say the sanctions on Russia’s financial system can not only technically prevent the country from paying maturities due in mid-March, but also raise concerns about the country’s willingness to service its debt.

The default by Moscow will be the first since 1998.

Possible technical malfunction

By freezing the assets of the Russian Central Bank and excluding some banks from the SWIFT message system, a key to international finance, Western countries have made paying off Russian debt, particularly in foreign currency, technically complicated.

Russia has important deadlines in mid-March, the repayment of $ 700 million. “It’s not huge, but part of the assets, especially those of the central bank, have been frozen, and this poses the risk of default due to lack of access to the dollar,” said Alexandre Paradis, an analyst at IG France.

According to him, the devaluation of the Russian currency is “not related to the financial capacity of the country”, whose debts represent a small part of GDP, but rather to the restrictions associated with sanctions.

These are intended to prevent Western investors from buying new Russian debt. Thus, they will make it more difficult to refinance Russia, even if foreign investors currently own just over a quarter of outstanding Russian bonds, according to Bloomberg data.

Under various sanctions since 2014, Russia has already strategically favored the domestic market for its debt.

shedding huge loads

The Moscow Stock Exchange was closed for several days, but the bleeding also affected Russian companies with securities listed on international markets.

And so the country’s first bank, Sberbank, oil giant Loukoil, and gas giant Gazprom collapsed in recent days, valued at just a few cents on Wednesday night on the London Stock Exchange. The latter finally suspended the listing of about twenty Russian companies on Thursday.

The US Nasdaq index also suspended trading on several securities of modest size companies.

The world’s largest sovereign wealth fund, Norway’s sovereign wealth fund, on Thursday estimated the value of its assets in Russia at ten.

Several major international index managers, including MSCI and FTSE Russell, also announced the exit of Russian companies from their stock market indices, which are widely followed around the world, accelerating the problems of these groups.

“We cut everything we could,” says Amundi’s Vincent Mortier, even though Russian law prevents foreign investors from selling their securities for the time being.

“The meaning of history is that Russia should get out of all Western client wallets,” he adds. Amundi itself has suspended subscriptions and redemptions for four exposed funds in the region.

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