It would be natural to assume that debt bankers covering Russia would by now be sunk in gloom. Their main market has been dormant for more than a year. Deal flow is nonexistent. The EU has just extended its sanctions for another six months, and the US is reportedly looking to step up its sanctions.
Most, however, seem remarkably chipper. Of course, this could be mere bravado or PR – but equally it may be genuine. For one thing, most of them are still there. While there has been some natural wastage, most international banks have kept their Russia staff on. Many have been seconded to other departments, or sent on extended tours of likely markets elsewhere in the region, but few houses have run down their Russia operations.
Too big to ignore
This should come as no surprise. While Russia may not be quite the economic superpower many of its citizens appear to believe – its GDP is still well below Italy’s and not much larger than that of Spain – it is by far the largest market in emerging Europe and much too big to ignore, thanks to its astonishing hydrocarbon and mineral resources.
It thus makes perfect sense for international banks to keep a presence in Russia and suffer a couple of years of bad results in the interests of maintaining a potentially highly profitable long-term franchise.
What is really putting a spring in Russia bankers’ steps, however, is not the long-term outlook but the shorter term one – more specifically, the prospect of a spectacular reopening of the country’s debt markets. There is much talk of walls and waves – a “wall of money” waiting to move into the country once the “biggest wave of debt issuance in history” gets under way.
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There is some justification for this mangling of metaphors. According to Moody’s, Russia’s largest corporates have more than $100 billion of debt coming due between now and the end of next year. Clearly, some of that will be repaid – Russian companies are not in investment mode at the moment. And some of it is likely to be refinanced cheaply by the Russian government, through state banks. Even so, the potential refinancing requirements could be huge.
Whether there will be an opening of the floodgates, however, and when it might happen, remain very much open to question. So far, even the smallest of refinancings by the least politically connected companies have met with little enthusiasm from investors.
That may well change. Barring further geopolitical ructions, some hard currency debt deals – both bonds and loans – should emerge before the end of this year.
Walls or waves, however, seem less probable. Sanctions are not going away any time soon – and even if they did, switching them off would not automatically switch on Russian capital markets. Investors will remain wary for some time to come, particularly if rate rises in the US come through as expected and the oil price stays low.
Debt bankers may find themselves facing another long, hard winter in Russia.