US sanctions hit Russian investment hopes
‘Trump bump’ a damp squib; sanctions may last long
New US sanctions on Moscow have forced Russian business chiefs to accept that Donald Trump’s rise to power is not about to produce a “Trump Bump” in foreign investment.
After Trump became US president, some investors said they would be prepared to contemplate new deals with Russian firms if they saw signs that US-Russian ties were improving and US restrictions on business with Russia were being relaxed.
But the new sanctions, signed onto law by Trump on Aug. 2, add new measures and codify six orders signed by President Barack Obama, making them harder for Trump to revoke.
For the business community in Moscow, the message is clear-there is no immediate prospect of Washington softening its stance towards Moscow. “Russia faces the codification of sanctions which suggests they will be hellishly difficult to take off and are likely to remain in place for the very long term,” said Tim Ash, a strategist at BlueBay asset management in London.
“The mere fact that the US and Western governments ... saw fit to levy sanctions on Russia sends at the least an amber light to Western business-be careful in your dealings with Russia.” The United States initially imposed financial and travel restrictions on Russia in 2014, after Russia annexed the Crimea region from Ukraine following the fall of a pro-Moscow president in Kiev.
The latest measures allow Congress to block any effort by the president to ease or lift the existing sanctions, tightens some of those sanctions, and imposes new restrictions in some sectors. Executives in Russian banks and energy companies, the main targets of the US sanctions, told Reuters their compliance departments were still going through the fine print of the new law to understand the practical impact. Already clear, though, was the message about the duration of the sanctions.
“This is obviously for a long time,” said a source in a major Russian oil company, who spoke on condition of anonymity because he is not authorized to speak to the media.
Moody’s rating agency said in a note to clients that the new sanctions on Russia “are likely to further deter investment there.” The sanctions in place since 2014 directly restrict a narrow range of business dealings. Their biggest effect, according to investment bankers and corporate lawyers in Moscow, is that they create the risk of more sanctions being added.
Under that scenario, a deal signed outside the scope of the sanctions could quickly fall under sanctions. If that happened, investors would be likely to lose money and few want to take that risk.
On the other hand, if investors believe the sanctions will not be expanded, they can conclude deals with some confidence, even while existing measures remain in place.
SHIP HASN’T SAILED
Trump’s election triumph last November led many in the Russian business community to believe that the worst of the sanctions was over. It was at this time that a longplanned deal to privatise a stake in Sovcomflot, a stateowned shipping company with a fleet of modern vessels and lucrative energy sector contracts, was put back on the government’s agenda.
The fate of the partial privatization since then reflects the importance of the new sanctions to investor sentiment. No one involved in the Sovcomflot deal has publicly committed to a date for the sale but two financial market sources told Reuters late in May that the deal was expected in early June.
The plan later changed again because of deteriorating market conditions, a source familiar with the situation said in June-the same week that the Russian stock index slipped on concerns that Washington would impose new sanctions on Moscow.
Later in June, a senior Russian government official told Reuters the deal might happen in July. But after the new US sanctions, Moscow’s tone on the deal became more cautious though officials declined to say whether the new sanctions would alter the government’s decision about when the sale happens. “It’s clear that the USA’s toughening of the sanctions regime right now will hardly make the investment climate for this asset more attractive on international financial markets,” Transport Minister Maxim Sokolov told reporters on Aug. 3. — Reuters