Azernews.Az

By Bloomberg

Think the ruble’s close to finding its bottom? Investors might want to wait a month before deciding yes.

Along with the central bank’s surprise rate cut on Friday, the threat of expanded sanctions over Ukraine and the prospect of a second, or third, downgrade to junk, Russian companies need $10.2 billion of foreign currency to repay maturing debt in February, according to data compiled by Bloomberg. Next month is the biggest for corporate redemptions this year, accounting for almost a quarter of the total.

For those companies without the needed euros and dollars, that means converting rubles, putting additional pressure on a currency that was the biggest loser in emerging markets in January. Russian corporates have been forced to hoard foreign cash to meet international obligations after finding themselves locked out of western capital markets and as plunging commodity prices erode revenue amid a looming recession.

“The heavy corporate foreign-exchange debt repayment schedule in February has the potential to cause another confidence crisis in the ruble,” Per Hammarlund, the chief emerging-markets strategist at SEB AB in Stockholm, said by e- mail on Thursday. “If the payments coincide with lower oil prices, another intensification of the Ukraine conflict, and threats of tighter sanctions, Russia would face another bout of market volatility.”

Rosneft Loan

The onslaught of maturing debt risks burdening the ruble as European Union foreign ministers cleared the way for a fresh round of penalties and as Brent oil, the grade used to price Russia’s main export blend, slid by more than half in the past six months. The currency dropped 14 percent in January, following last year’s 46 percent slump, as Standard & Poor’s cut the sovereign to junk.

OAO Rosneft is scheduled next month to repay a $7.1 billion bridge loan raised for the acquisition of TNK-BP, a portion of the $19.5 billion it said is coming due in 2015. The ruble slid 6.6 percent to a record closing low on Jan. 26 in part as Russia’s largest oil producer sold 400 billion rubles ($5.8 billion) of bonds, stoking speculation it would convert the cash into to dollars to retire the loan.

Dollar Funding

The company said it planned to keep the money in the local currency to pay suppliers, contractors and creditors, enabling it to draw on existing funds to pay obligations abroad.

“There are a large number of sources, mostly provided by the central bank of Russia, that could provide additional dollar liquidity for dollar redemptions, smoothing any negative effect on” the ruble spot price, Iskander Abdullaev, an analyst at Sberbank CIB, said Wednesday from Moscow.

He pointed to possible loans from cash-rich and debt-free energy companies, such as OAO Surgutneftegas or OAO Rosneftegaz and loans from local banks. Private companies have or will receive $82.6 billion in 2015 to cover maturities, Sberbank estimates published Wednesday showed.

Rosneft was among five state-controlled exporters the government asked last month to cut their foreign-currency holdings by March 1 to levels no higher than on Oct. 1. “Fading” support for the ruble from exporters, coupled with geopolitical risks, are weighing on the currency, Vladimir Miklashevsky, an economist at Danske Bank A/S in Helsinki, said Thursday by e-mail.

Draining Reserves

Fighting across eastern Ukraine in recent weeks has undermined a September truce in a conflict that has killed more than 5,000 people. EU foreign ministers on Thursday gave the go- ahead for “preparatory work” on “any appropriate action” to force the Kremlin to observe the cease-fire.

Russia has less fire power after spending about $90 billion last year to prop up the currency. International reserves -- which were $378 billion on Jan. 23 -- may fall below $100 billion by the end of 2016, the “prudent minimum” to cover short-term external debt payments, according to Neil Shearing, the chief emerging-markets economist at Capital Economics Ltd. in London.

The currency slid as much as 4.3 percent on Friday after policy makers lowered the benchmark interest rate to 15 percent from 17 percent, contrary to the expectations of all but one of 32 economists in a Bloomberg survey. It weakened 2.6 percent to 70.56 per dollar by 3:54 p.m. in Moscow.

“External debt redemptions are a drain” on reserves under sanctions, Dmitry Dudkin, the head of fixed-income research at UralSib Capital in Moscow, said by e-mail. “The oil price and expected amount of external-debt redemptions in 2015 justify a lower ruble rate at 72-75 per dollar.”