Credit Suisse says russian company defaults are inevitable


More Russian company defaults are in store amid a record drop in the ruble stoked by a slump in the price of oil, according to Valery Pushnya from Credit Suisse Group AG, reported Bloomberg.

There’s a “clear mismatch” as the pain companies are feeling from this year’s more than 40 percent drop in the ruble and in oil hasn’t yet fed through to bankruptcy, employment and economic growth data, said Pushnya, the head of emerging markets in Europe, Middle East and Africa at the Swiss lender.

Russian companies are suffering as the nation’s deepening international isolation amid U.S. and European Union sanctions over Ukraine locks many out of foreign debt markets and drives up local borrowing costs. President Vladimir Putin’s policy speeches this month failed to shore up sentiment, with the ruble dropping to a record low today and overtaking Ukraine’s hryvnia as the world’s worst-performing currency this year.

“There is no clear exit from political deadlock, it is not clear if the Russian government has a clear plan and investors always flee from uncertainty,” Pushnya, said in an e-mailed response to questions from Bloomberg News today. “Defaults are inevitable.”

Petropavlovsk Plc, Russia’s third-biggest gold producer, agreed with most of its investors earlier this month to a rescue package that includes selling $335 million of shares and bonds to cut debt.

Net capital outflows from Russia are set to surge to $125 billion in 2014, according to the Economy Ministry. That would be the highest since 2008, when $133.6 billion left the country, according to central bank data.

The ruble weakened 9.7 percent to 64.4455 per dollar at 9:20 p.m. in Moscow, the steepest slide on a closing basis since 1998, the year Russia defaulted on local-currency debt. Traders are testing how much weakening the central bank will allow before stepping in with bigger market interventions after freely floating the currency in October.

“Fundamentally, the ruble was fairly valued at around 45-50,” Pushnya said. “After breaking 50, it can go as far as market sentiment takes it. The CBR’s interventions here are useless as it is clear the longer they intervene, the less dry powder they have left and there is never enough of it.”

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