COMMENT: There's zero risk of a Russian sovereign default

By bne IntelliNews October 30, 2008

Research team of Uralsib -

Fear of default: Late last week credit default spreads (CDS) were priced as if Russia were almost in default. With $515bn of foreign currency reserves, daily cash inflows from hydrocarbon exports of $650m (at $60/barrel Urals), and total sovereign foreign debt of $43.1bn, the risk of default is actually zero. Sovereign domestic ruble debt stands at around $60bn.

Zero risk of a sovereign default: The total value of debt in Russia, both foreign and domestic, is approximately $1.26 trillion. This is equal to 74% of the forecast volume of GDP for 2008. Within that debt total, that owed by the state is just less than $100bn, of which less than $40bn is foreign debt. We, therefore, believe that there is a zero risk of a sovereign default. In addition, we consider that the actions taken by the Russian government, and the financial provisions put in place, mean that there is also almost a zero risk to Russia's "high street" banks.

Some companies face problems: Russia's non-bank corporate sector owes an estimated $857bn, comprising of $187bn owed to foreign banks, $116bn of issued eurobonds and $554bn due to domestic lenders. The government has also put financial safeguards in place to prevent any defaults, or debt re-financing problems, amongst the county's most important corporations. But clearly, given the scale of the debt, many of the country's corporations with a stock market listing will have to obtain new sources of finance and, in some extreme cases, may have to sell equity and/or assets.

State will defend banks: The total foreign debt owed by Russia's banks is $193bn (Central Bank data as of 1 July), $18.5bn of which needs to be refinanced by February 2009. The government has, however, made it very clear that it will prevent any "high street" bank from failing, and any that have problems will either be bailed out by the state-owned Development Bank (VEB) or rescued via a deal brokered by the Central Bank and a stronger buyer. To date (26 October) the state has put almost $230bn in place to ensure the banking system is protected and to help major corporations refinance debt.

VEB money to help large companies: The total foreign debt of Russia's non-banking corporations stood at $296bn as of July), $29.0bn of which needs to be refinanced by February. The state has placed $50bn with VEB primarily to help refinance important companies. Companies looking for funds to refinance loans can apply for a minimum of $100m and a maximum of $2.5bn. The committee that will make the final decision on each application is chaired by Prime Minister Vladimir Putin. More than 50% of a company or bank should be owned directly or indirectly by a Russian entity or individual.

Domestic bank debt is $637bn: In addition to $488bn owed by the country's banks and companies, the total level of domestic banking debt is $637bn - corporations owe $481bn and individuals $156bn. It is not known how much credit Russian individuals have borrowed from foreign banks.

Total corporate debt is $857bn: Russia's corporations owe a total of $857bn: $187bn to foreign banks, $116bn in Eurobond issues, $73bn in ruble bond issues and $481bn to domestic banks.

Planned to raise $100bn over two years: Russian companies had planned equity issuance of approximately $40bn in 2008 and $50bn in 2009. This money had been earmarked both to pay down foreign debt and to fund future growth. The total raised so far this year is just over $2.5bn, and the outlook for the next 12 months suggests that conditions will remain tough for equity issuance.

Much less than in developed countries: This sum corresponds to 74% of GDP (Uralsib forecast for 2008) - considerably less than the 150-200% debt to GDP levels in the US, UK and some other EU countries.

Send comments to The Editor

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.