Russia’s Sanctioned Bond Boycott
Russian shares stayed positive through March as President Putin authorized state company minority stake sales through the Moscow exchange, including for VTB Bank that could fetch $5 billion in an initial phase, at the same time a $3 billion sovereign bond issue was planned to certify resumed access despite lingering targeted sanctions. US and European underwriters were warned off participation on the heels of a successful Gazprombank Swiss Franc placement, as Moody’s closed its local office with fading business and competition from a new domestic firm launched by the government to challenge the main ratings firms globally. The central bank claimed the agency will be “geopolitical risk immune” as it castigated the mainstream providers’ speculative grade assignment since the Crimea and West Ukraine invasions and hydrocarbon export price upheaval. Rates were on hold with another year of recession set this year, as officials may end private pension contributions in light of the medium-term budget deficit and cash-strapped regions look for additional federal support to cover salaries and services. Labor unrest has spread in one-industry towns, but failed to dent Putin’s opinion poll approval at 80 percent, reinforced by pro-Assad intervention in Syria that turned battle momentum for the regime with air bombardment. The ruble after 2015’s record loss has also gained slightly against the dollar, but the turnaround came too late to salvage the prospects of aluminum giant Alrosa, once more in restructuring talk over its $8 billion debt. After a current account surplus rise and two-thirds capital outflow drop to $55 billion last year, foreign reserves are no longer need for broader corporate refinancing needs, although hard currency may be mobilized through the rainy day sovereign fund for fiscal purposes. The agricultural import and tourism ban with Turkey continues and the Minsk accord stalemate on Ukraine’s breakaway provinces persists despite several meetings with Western powers and relative cease-fire. EU sanctions were renewed but Hungary and Poland are increasingly vocal about rollback, as German leader Merkel tries to maintain her hard-line position in the face of ant-refugee political revolt and France gears up for 2017 presidential elections. Leftist labor unions there decry proposed firing and working hour reforms and blame the Russian trade battle as an external scapegoat for flat growth and high unemployment.
Ukraine equities and bonds have stumbled on their own account with the IMF’s $1.7 billion disbursement and accompanying bilateral aid hung up for almost six months, after parliamentary standoff blocked anti-corruption and fiscal cleanup. After the technocrat Economy Minister resigned in frustration, a key party left the coalition and a scramble is on to replace unpopular Prime Minister Yatsenyuk before another likely round of elections. President Poroshenko has imposed an April deadline, and Fund Director Lagarde sounded the alarm that the rescue may be indefinitely shelved without convincing political support and implementation. The package has restored reserves to $13.5 billion as of February, but the central bank continues to intervene to back the currency amid projected double digit output shrinkage and 30 percent inflation. At the Vienna Initiative’s March forum in Kiev, the central bank noted 70 banks were gone since 2014 and a restructuring law under consideration should speed consolidation if creditor rights are duly sanctioned.
