Russian equity market is frozen

RUSSIA ECONOMICS - In Brief 02 Mar 2022 by Alexander Kudrin
The decision of Western countries to freeze assets of the Russian Central Bank, which has been agreed over weekend, became the “surprise” for the local authorities and caused them to implement counter steps. For example, international investors were prohibited from receiving any payments in the form of dividends or interest payments/redemptions on local bonds or equities, which effectively means that they are locked into this paper. Simultaneously, the CBR decided to ban any new loans denominated in hard currency from local residents on international entities since Mar 1. It’s not clear how the Finance Ministry will be able to conduct its obligations on interest payments on Sovereign Eurobonds (the next payment is scheduled for Mar 16) given the absence of access to the international reserves of CBR, which are traditionally used for these payments. We don’t rule out that this will trigger a full-fledged default on sovereign paper; CDS contracts jumped from 541 bps in the end of last week to 1650 bps The local equities market is closed due to regulation of CBR. At the same time ADRs on local shares prices dropped significantly lower as international holders preferred to decrease their exposure to Russian risk. Besides that, many market participants are afraid that these programs will be cancelled in the near future and ADRs will be not traded on the international market. The CBR plans to resume domestic equity trading on Mar 5. Given the decision to support this market with intervention from the NWF, certain stabilization is possibleEvgeny GavrilenkovAlexander Kudrin

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