Russia’s Well for Corporate Bailouts Appears to Be Running Dry
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Version 0 of 1. MOSCOW — Facing Western sanctions and low oil prices, Russian companies are lining up for subsidies from the government. But the demand for bailouts is quickly outstripping the supply of money, raising the prospect of an economic crisis here if the funds run out. With the economy flailing, the Russian government set up a corporate bailout program last year, tapping one of the country’s sovereign wealth funds. Almost immediately, companies started applying. The state-owned oil giant Rosneft has requested $21.3 billion. Gazprom, the dominant natural gas player, has asked for $3.2 billion for a subsidiary. The list goes on: Russia’s railroad monopoly, which is also the largest employer in the country; an owner of Moscow’s airports; a venture capital firm investing in nanotechnology; and a company exporting Russian nuclear power plants. So far, companies have requested at least $37 billion, a figure that is likely to rise much higher. “Quite a large number of companies have access to no other source of funding,” said Vladimir I. Tikhomirov, the chief economist at BCS Financial Group. But the sovereign wealth fund, the National Wellbeing Fund, might not have enough to cover their needs. The fund had roughly $75 billion in reserves at the beginning of the month. About a quarter of the money is held in illiquid assets, so it can’t be parceled out for the bailout program. Some of the money is also allocated for infrastructure. In all, the illiquid assets, the infrastructure works and bailout requests amount to at least $82 billion. The sovereign wealth fund is trying to stretch the rubles by lending money to banks to buy corporate bonds of needy companies. The banks get capital; the companies get much-needed funds. In essence, every 1 billion rubles covers two bailout needs. That strategy, though, could create its own headaches. If oil prices fall and the economy weakens further, the bonds may not be worth as much, putting the banks and companies in a financial bind. “There is a cushion for the short-term drop in oil prices, but there is no cushion for the long-term one,” Kenneth Rogoff, a former director of the International Monetary Fund, said at the Gaidar Economic Forum in Moscow earlier this year. Like many petroleum exporting nations, Russia socked away reserves during years of high oil prices. But the government is now rapidly spending those funds, with oil prices now hovering around $60 a barrel. Western sanctions over the Ukraine conflict are adding to the financial tumult. The country is far from running out of money. Russia still has $360 billion in reserves, although that is down from more than $490 billion a year ago. The central bank has been tapping the funds to help prop up the ruble. When it comes to companies, the process gets a bit more complicated. The two main treasure chests in Russia are the National Wellbeing Fund and the National Reserve Fund. Under Russian law, the Reserve Fund can be used only to supplement the federal budget. And money in the Reserve Fund, roughly $77 billion, is largely spoken for. Under a budget tentatively approved in the cabinet on Thursday, the government intends to spend about $52.4 billion, or two-thirds of the Reserve Fund, this year, and most of the rest in 2016. Tapping the Wellbeing Fund has been controversial from the start as it is technically part of Russia’s pension system. In the first months of this year, the fight for the fund’s money mirrored the broader economic struggle of modern Russia, as oligarchs and their state-linked businesses compete fiercely with the needs of struggling pensioners for the wealth of the country. A big worry was that pension funds would be used to prop up sanctioned companies. The government has even discussed the politically perilous idea of raising the retirement age to avoid a pension shortfall in coming years. Doling out the fund’s money became so imbued by politics that by February, President Vladimir V. Putin introduced a rule requiring presidential approval for all new allocations. He also shifted management to himself, from his prime minister, Dmitri A. Medvedev, who oversaw the funds through the ministry of finance. It all happened at a high-powered meeting of top government officials at Mr. Putin’s country home, or dacha, a residence called Novo-Ogaryovo, outside Moscow. In the struggle for the fund’s resources, a plan emerged to spend each ruble twice. The bonds will inject money directly into the companies. In turn, the banks can place the bonds with the central bank as collateral for loans, plumping up their capital. Assuming the economic environment doesn’t shift, it could work. But if the economic recession deepens, the market price of the bonds could fall. In that case, the banks will have to cut the value of the bonds on their balance sheets, eroding their capital base. The plan could also create tumult in the market. Late last year, the central bank decided to accept Rosneft bonds held by commercial banks as collateral for loans. Rosneft then issued 625 billion rubles in new bonds. The bonds were bought in part by large banks, which could use the bonds to get loans from the central bank. The strategy, essentially a complicated maneuver by the government to help bail out Rosneft, rocked the markets. The ruble dropped 10 percent in a single day, prompting the central bank to sharply increase its main interest rate in the middle of the night. But Russian companies, particularly those in the energy sector, don’t have many options in the current environment. Rosneft originally asked for $50 billion from the government. It scaled back the request in January to $21 billion, roughly in line with the amount of debt the company has coming due this year. On Thursday, GazpromNeft, the oil arm of Gazprom, confirmed that it had applied to the government for funding. Aleksandr Dyukov, the chief executive of Gazprom Neft, asked for $3.2 billion from the Wellbeing Fund and a Central Bank program of subsidized lending. In a letter to a deputy prime minister, Mr. Dyukov cited the main problems: sanctions and the lack of other sources of financing in Russia. |