PARIS – In recent weeks, the fall in the
Russian ruble and Russian stock markets closely tracked the declines in global
oil prices. But everything changed on December 15. The oil price remained
stable, but the ruble and the stock-price indices lost 30% in the subsequent 24
hours. An unprecedented effort by the Central Bank of Russia (CBR) in the wee
hours of December 16 to stabilize the ruble, by hiking the interest rate from 10.5% to 17%, proved useless.
The cause of Russia’s “Black Monday” was
readily apparent: the government bailout of state-owned Rosneft, the country’s
largest oil company. Usually, bailouts calm markets; but this one recalled
early post-Soviet experiments, when the CBR issued direct loans to enterprises
– invariably fueling higher inflation. The CBR’s governor at the time, Viktor
Gerashchenko, was once dubbed the world’s worst central banker.
In 2014, the CBR is more constrained than it
was in Gerashchenko’s era: it cannot lend directly to firms. Yet it has also
become more sophisticated at achieving the same ends that Gerashchenko sought.
In October, Rosneft issued $11 billion worth
of ruble-denominated bonds (an unparalleled amount for the Russian market,
equivalent to 70% of the total value of corporate bonds issued in Russia this
year). The coupon on these bonds was actually 1.5 percentage points below
sovereign bonds of similar maturity, which is also unusual, especially given
that Rosneft currently is subject to Western sanctions.
Then, unnamed investors (allegedly the
largest Russian state banks) benefited from the CBR’s decision on December 12
to allow these bonds to be used as collateral for three-year CBR ruble loans at
the policy rate. Moreover, the CBR scheduled a special auction for such loans
on December 15 – with the total amount of the loans similar to that of
Rosneft’s bond issue. Thus, the CBR would be able to provide a massive pile of
rubles to Rosneft at below-market rates. So why did the deal trigger a panic?
At first glance, this deal was intended to
meet contemporary Russia’s most
important economic challenge. Sanctions have cut off Russian banks and
companies from Western financial markets. Russian companies have to repay or
refinance about $300 billion of debt over the coming two years. Some of this
debt is owed to Russian companies’ offshore owners, who will certainly be happy
to roll it over. But in most cases, firms’ liabilities comprise real debt owed
to major international banks.
The best example is Rosneft, which borrowed
about $40 billion in 2013 to buy
its competitor, TNK-BP. About $10 billion of this debt has to be repaid in
the fourth quarter of 2014, including a $7 billion payment on December 21 ($20
billion more will have to be repaid in 2015).
Financial-market investors have been waiting
patiently for the government to announce a strategy for addressing the issue of
external corporate debt. The CBR did introduce a 12-month dollar facility for
up to $50 billion, but this will barely last until the end of 2015.
Given that the price of oil is likely to
remain low, Asian financiers – even the Chinese – do not seem eager to
refinance Russian companies, and sanctions are unlikely to be lifted, investors
clearly wanted a bigger and bolder solution. Rosneft had repeatedly asked for
$40 billion from Russia’s sovereign wealth fund. But, with that money already
committed to other purposes, the government opted for a non-transparent and
non-market-based solution that would have made Gerashchenko proud.
Unfortunately, this solution poses several
immediate problems. For starters, the risk of Rosneft defaulting – as well as the
cost of providing subsidized loans – rests with the bondholders. If the
bondholders are indeed the largest state-owned banks, the deal actually hurts
the banking system: it increases the concentration of risk and implies
additional losses from buying bonds with below-market interest rates.
Second, because Rosneft must repay its
external debt, it is likely to use its bailout cash to buy dollars, which can
only result in further downward pressure on the ruble. Rosneft has denied this
publicly, but the markets nonetheless seem to expect that the newly printed
rubles will flood the currency markets.
Third, the non-transparent structure of the
deal undermines trust in the CBR’s integrity and independence. The day after
Black Monday, Minister of Economy Alexey Ulyukaev said that the CBR should have
increased interest rates sooner. This immediately raised suspicion that the CBR
delayed the interest-rate hike in order to complete the deal at the lower rate.
Finally, this bailout fails to answer the
question it was supposed to address. Investors do not know whether the Rosneft
bailout is a one-off deal and, if it is not, which companies can hope to
receive similar treatment from the CBR. Thus, they do not understand how (and
whether) Russian corporate debt will be repaid or refinanced – or how much
trust they can place in the ruble.
Sergei Guriev, a former rector of the New Economic School in Moscow, is Professor of Economics at Sciences Po.
