How much is Russia worth? Close to zero, according to investors around the world. The world’s largest sovereign wealth fund, the Norway Fund, estimated on Thursday that its investment in Russia, or $2.7 billion in assets, was “Lost”. According to the estimate, their value would be divided by ten. “very, very insecure”, acknowledges Nikolai Tangen of the Sovereign Fund. On Thursday morning, a long press release from Societe Generale stated that could “absorb” loss of a subsidiary Russian bank, even estimated at zero (compared to 2.1 billion euros at the end of 2021). He no longer rules out exiting subsidiary Rosbank, which was very profitable before Russia’s invasion of Ukraine.
More than 90% drop in Russian securities in London
Faced with international sanctions, this is generally a flight for all Russian assets. The Russian banking system is paralyzed, the Moscow Exchange has been closed since Monday. Russian companies listed abroad have collapsed on the London Stock Exchange, such as Sberbank, oil giants Rosneft and Lukoil (whose board just called for a halt to hostilities), or even gas giant Gazprom (but exempted from sanctions) , which lost over 90% of their value in a few days. It is no longer possible to sell them anyway, the London Stock Exchange has suspended all listings of Russian securities and derivatives.
The Russian government is preparing new measures to curb capital outflows. The central bank has already imposed capital controls, such as requiring Russian exporters to convert 80% of their income into rubles or forbidding Russians from sending money abroad. Despite everything, the ruble continues to go to hell as the central bank raised the rate to 20%.
The world’s leading stock index provider MSCI has just excluded Russia from its emerging market indices. “Russian shares are not invested”, thereby justifying MSCI. A similar decision was made by another index provider, London-based FTSE Russell. This would further isolate Moscow, given the weight of index management, especially in emerging economies, and trigger a massive sell-off in Russian securities at the first opportunity.
The Central Bank of Russia has decided to no longer pay coupons on ruble-denominated government bonds owned by international investors. The measure does not cover international foreign currency bonds, but this announcement looks very much like the start of a default. Moreover, the rating agencies S&P, Moody’s and Fitch have downgraded the rating of Russian debt to speculative, which means that Russia most likely will not repay its debt.
On the way to non-payment?
But it is not so much about its ability to pay – Russia has something to pay thanks to its foreign exchange reserves (40% of GDP), but about its “technical” impossibility to do this due to international sanctions. Part of the assets of the Russian Central Bank is really frozen, which makes it difficult to take any measures to support the ruble. By mid-March, international bonds are expected to mature at $700 million. The default will be the first since the 1998 Russian crisis. “The meaning of history is that Russia comes out of all wallets”summarizes with AFP Vincent Mortier from Amundi, Europe’s first asset manager.