Russia is limiting corporate access to domestic financing even as the escalating Ukraine crisis increasingly isolates companies from overseas sources of cash.
The government's about-face on its pledge to end a freeze on pension money being used by private money managers risks raising corporate borrowing costs as it deepens the country's economic slowdown. Some of Russia's biggest issuers are already locked out of international capital markets as punishment for what U.S. and European leaders say is President Vladimir Putin's support of separatists in eastern Ukraine.
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"There won't be any prospect of funds for growing the market," Fedor Bizikov, a money manager at GHP Group in Moscow, said by phone on Aug. 8. "It will be expensive for companies to borrow and not everyone will be able to."
The additional yield investors demand to hold Russian corporate dollar bonds over emerging-market counterparts increased to 205 basis points on Aug. 8, the most in more than five years, indexes compiled by JPMorgan Chase & Co. show. Bond sales by companies and Russian regions this year slid 52 percent to 461 billion rubles ($12.7 billion), according to data compiled by Bloomberg.
Russia prevented privately managed pension funds from collecting new contributions this year as part of an industry overhaul. The moratorium was due to be lifted in 2015, which would have enabled the funds to receive about 500 billion rubles in the first quarter, according to a forecast by Deputy Finance Minister Alexey Moiseev in July.
The country will instead direct cash into the pay-as-you-go pool, which the government uses to pay current retirees, Labor Minister Maxim Topilin said last week. The decision prompted a government public clash as Deputy Economy Minister Sergey Belyakov was fired after saying in a Facebook post that he was "ashamed" of the cabinet's decision.
The U-turn will enable the State Pension Fund to narrow its deficit, curtailing the need for the Finance Ministry to sell debt as borrowing costs surge, ZAO Raiffeisenbank analysts led by Anastasia Baykova said in a note last week. The shortfall is set to reach 829 billion rubles in 2015, pension agency head Anton Drozdov said in May.
Soaring borrowing costs since the U.S. expanded sanctions in mid July have prompted Russia to cancel three local-currency bond auctions in a row. Yields on debt due in February 2027 jumped to 9.82 percent on Aug. 8 from 8.77 percent on July 16, just before the penalties were imposed. The ruble gained for a second day against the dollar, adding 0.2 percent to 36.0675 as of 12:26 p.m. today in Moscow.
The government appears to be consolidating available sources of financing to withstand "all the headwinds stemming from the fundamentally weak economic backdrop augmented by the sanctions," Dmitry Polevoy, an economist at ING Groep NV in Moscow, said in an e-mailed note Aug. 5.
Pension cash won't go far in offsetting capital outflows, Dmitry Kosmodemiyanskiy, a money manager at Otkritie Capital in Moscow, said by e-mail. The $12 billion to $15 billion share that would be directed into private funds compares with $80 billion of outflows in the first half of the year, he said.
As the government seeks to shore up its finances, it's limiting the pool of possible buyers for the nation's corporate debt. The average yield on company ruble bonds has surged 165 basis points since Russia's incursion into Ukraine's Crimea peninsula in March, to 10.45 percent on Aug. 7, the highest since 2010, according to a UralSib Capital index.
Corporate debt will be hurt as "there's a danger that the government will return completely to state planning and pay-as- you-go," GHP Group's Bizikov said.