Russia announced new measures to stave off a liquidity crisis on Monday as Vladimir Putin, the Russian prime minister, said a state-controlled bank would extend $50bn (€34.7bn, £27.7bn) in loans to help the country’s debt-laden companies and banks pay off foreign loans.
But Russia’s main bourses sank sharply with the dollar-denominated RTS closing down 7.5 per cent, and the rouble-denominated Micex falling 5.5 per cent, as a crisis of confidence continued to depress the money markets and second and third-tier companies were starved of cash.
The market drop means the RTS has by now lost more than half the “bounce back” gains made since Russia unveiled a $100bn-plus liquidity package on September 18 to halt the steep falls that caused the government to close down the bourse for two days.
Mr Putin’s announcement came as a sign of increasing fears about Russian companies’ and banks’ ability to refinance the $40bn in external debt that falls due by the end of the year as global credit markets worsened.
Mr Putin said the state-owned development bank, Vneshekonombank (VEB), would loan up to $50bn to Russian companies who had to pay back foreign debts acquired before September 25. Andrei Klepach, the deputy economy minister, later said these funds would originate from the country’s $560bn in hard currency reserves.
International ratings agency Standard and Poors has expressed concern that Russia’s rescue package could eat into the $180bn in windfall revenues it has saved in two sovereign wealth funds.
“It is very difficult to predict at this time how much this is going to cost the government,” said Frank Gill, sovereign analyst at Standard and Poors.
Mr Putin also said the central bank would be allowed to lend to banks without a collateral, a move that analysts said would be a key measure to get money moving in the system as collateral limits are reached.
The central bank is also to accept the potential losses incurred by other banks funding the money market.
Julian Rimmer, trader at Uralsib investment bank, said that the announcement that VEB would lend $50bn to companies to refinance debt would alleviate the situation, but it might not get liquidity to where it is most needed in the second and third-tier companies. These are being starved of cash because of the crisis of confidence and have no foreign debt.
“There is no liquidity and even if the governments pumps it in it is not getting to the second and third tier companies ... he only place they can raise money is by selling shares.
“The problem for Russia is coming from a stock market and real estate bubble and that deleveraging process is still under way,” he said.