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bne May 2018 Cover Story I 39
Russian assets are toxic nuclear that as a result it had no practical impact Not now. The Specially Designated
on the prices of assets.
Russian companies went back to busi- ness as usual. Credit Bank of Moscow (CBOM) issued a $500mn bond to high demand. Fertiliser giant Phosagro also got a $500mn bond away in February that was five-times oversubscribed.
PhosAgro CEO Andrey Guryev told bne IntelliNews at the time: “This place- ment represents a new benchmark
for the company, enabling us to lower the average interest rate and signifi- cantly improve the structure of our debt portfolio. We saw strong demand from international investors during the deal, with over 90% of the orders coming from American and European investors. We were happy to see major interna- tional funds and banks participating in this placement.”
And in the midst of the scandal sur- rounding the poisoning of former spy Sergei Skripal in March, state-owned gas giant Gazprom issued a €750mn bond in London to strong demand at exactly the same time as on the other side of town Prime Minister Theresa May was announc- ing the expulsion of 23 Russian diplomats for spying. Russia’s finance ministry followed up a few days later with a $4bn Eurobond issue, also to a strong market.
But the latest sanctions were different. They hurt. All the previous sanctions imposed on Russian companies had only affected new securities – listings of new shares or bonds. Existing securities were unaffected.
waste again. On April 6 the US
Treasury Department (USTD) released a new set of targeted sanc- tions aimed at some of Russia’s biggest businessmen and their companies, and unleashed chaos on the markets.
Russian assets were hot until the new sanctions, with foreign investors piling into Russia’s sovereign ruble-denominat- ed debt as one of the best ways to make money in the global zero-interest world. But the sanctions have hit not just those companies on the new US list, but all of Russia’s companies. A sword of sanctions is now dangling over everyone as those announced so far were directed in such
a way is it is impossible to guess where it will fall next. This uncertainty has done far more damage than the actual sanctions which applied to a very small number of names.
Sanctions are not new and the April 6 list followed the “Kremlin Report” in Febru- ary that listed everyone on the Forbes Russian rich list (in fact it was just the Forbes list, the US government later admitted) but didn't actually impose any penalties on anyone.
Despite the fears of a harsh new regime in the run up to the release of the Kremlin Report, ordered by the Coun- tering America’s Adversaries Through Sanctions Act (CAATSA) law passed by the US congress six months earlier, no punishments were inflicted. Markets immediately shrugged the list off. The USTD made it clear that the report was not a sanctions list and investors said
Russia-dedicated bond fund flows, $mn
Nationals And Blocked Persons List (SDN List) released on April 6 not only sanc- tions those listed, it bans any investor with US exposure (European banks with US branches count) from doing any business with the sanctioned names. Investors were supposed sell all their stocks, bonds and debt within 30 days – i.e. before May 7.
Bond traders in London are pulling their hair out to comply, because the same rule that is forcing them to sell is stopping anyone else buying. One international institutional investor, who didn't want
to be named, recounts a conversation he had with his compliance department a week after the sanctions were imposed.
Compliance: “Why do we still have that Rusal debt on our books? Don't you know it’s illegal to hold in three weeks time?”
Trader: “Well you try and sell it then. The problem is: don't you know it's illegal to hold Rusal debt in three weeks time?”
“We went to the USTD. You can’t sell this stuff even at 20c on the dollar. They said “That’s your problem”,” the same investor recounts.
It seems that the USTD didn't think its sanctions through and was assuming that the pain would be restricted to Rusal and Russia.
“Politics is more important than busi- ness now and this is a change that will last for years. The people that make poli- tics think that politics is more important than finance,” says Stefan Benedetti,
Cost of insuring Russian debt has surged
Source: EPFR Global
Source: Bloomberg
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