Rus­sian banks shrink as they face fresh peak debt pay­ment

The Pak Banker - - COMPANIES/BOSS -

Rus­sian state com­pa­nies and banks are cut­ting staff and scrap­ping projects as they pre­pare for another surge of for­eign debt re­pay­ments of at least $35 bil­lion be­fore the end of the year amid fall­ing energy ex­port rev­enues and a weaker rou­ble.

Sber­bank, the coun­try's top bank <SBER.MM>, has al­ready shed 3,600 jobs this year and is promis­ing to un­veil a "man­age­ment re­form" by Oc­to­ber ex­pected to in­clude fur­ther job cuts. Another big state bank, VTB <VTBR.MM> has laid off 2,000 work­ers and promised more cuts.

Gas gi­ant Gazprom scrapped a $10 bil­lion gas liq­ue­fac­tion plant in the Pa­cific. Top oil firm Ros­neft had to post­pone some re­fin­ery mod­ern­iza­tion projects which had been due to cost up to $15 bil­lion over five years, ac­cord­ing to Rus­sian of­fi­cials.

"We have taken a de­ci­sion to ad­just our busi­ness plans to take into ac­count the macro en­vi­ron­ment and op­ti­mize cap­i­tal ex­pen­di­tures to pri­or­i­tize up­stream projects," said Ros­neft, whose to­tal debt is es­ti­mated at over $40 bil­lion.

Rus­sia has a very small sov­er­eign debt of around $50 bil­lion, but the world's largest energy ex­porter has amassed more than $500 bil­lion in cor­po­rate debt over the past decade as its state energy firms and banks bor­rowed heav­ily to grow at home and abroad.

Sanc­tions im­posed on Rus­sia over the an­nex­a­tion of Crimea and in­cur­sion in Ukraine since last year have made Western bor­row­ing vir­tu­ally im­pos­si­ble for most Rus­sian com­pa­nies, pre­vent­ing them from re­fi­nanc­ing debts as they did dur­ing the last fall in oil prices in 20082009. Rat­ing agen­cies and Rus­sian fis­cal author­i­ties ex­pect debt re­pay­ments in July-Septem­ber to go smoothly, in a re­peat of de­vel­op­ments in the fourth quar­ter of 2014 and the first quar­ter of 2015 when some $36 bil­lion was paid back. Rus­sia's cen­tral bank is­sued a state­ment on Mon­day de­signed to play down fears that large re­pay­ments could put the rou­ble un­der fur­ther pres­sure as the cur­rency <RUB=> hov­ered near a five-month low, hav­ing hit an all-time low in De­cem­ber.

Com­pa­nies buy­ing up hard cur­rency for debt re­pay­ments helped drive the rou­ble sharply lower last year.

The cen­tral bank said it thought real debt re­pay­ments un­til the end of the year would be much smaller than its own ini­tial es­ti­mates of $61 bil­lion, as much of that sum was rep­re­sented by com­pa­nies lend­ing to their own sub­sidiaries which can be rolled over.

The cen­tral bank said its latest es­ti­mates showed that real re­demp­tions could amount to $35 bil­lion un­til De­cem­ber. "Thus, the Bank of Rus­sia does not ex­pect ex­cess de­mand in the FX mar­ket in the run-up to ex­ter­nal debt re­pay­ments. The Bank of Rus­sia does not forecast con­sid­er­able port­fo­lio in­vest­ment out­flow and higher ten­sions in the FX mar­ket due to for­eign cur­rency pur­chases for im­port con­tract pay­ments," it said. The cen­tral bank has said it be­lieved Rus­sian com­pa­nies had enough liq­uid­ity to ser­vice their debt and a po­ten­tial liq­uid­ity short­age should not ex­ceed $4 bil­lion, which could be cov­ered from a spe­cial cen­tral bank cush­ion of $14 bil­lion.

Rat­ings agency Moody's said it be­lieved Rus­sian oil firms will largely shrug off low oil prices due to a fa­vor­able tax regime and a weaker rou­ble.

A Gazprom of­fi­cial told Reuters the com­pany, whose debt stands at around $25 bil­lion, has enough ex­port rev­enues for debt ser­vic­ing and has no plans to buy hard cur­rency from the mar­ket in the next months. The com­pany has to re­deem at least $1.7 bil­lion be­fore the year end, ac­cord­ing to Reuters data.

Banks have no such lux­ury as they have much smaller hard cur­rency rev­enues and will have to shrink faster.

"To­day our clients have less money and there is no bank which can af­ford to re­frain from cut­ting costs or rais­ing ef­fi­ciency in an en­vi­ron­ment of de­pressed rev­enue growth and ris­ing costs of risk," said Alexey Marey, man­ag­ing di­rec­tor from one of the big­gest Rus­sian pri­vate banks, Alfa Bank.

"For some banks it is a ques­tion of sur­vival, for oth­ers - it is a ques­tion of choos­ing pri­or­i­ties in cost cut­ting and de­vel­op­ment," he added.

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