You never know what’s next inside a matryoshka doll. Thanks to the financial crisis, the same might be applicable to Russian banks’ balance sheets too.
Because of the diverse collateral pledged by Russian companies to guarantee loans, the country’s banks have, in the last few months, acquired a multitude of varying assets — from oil fields and retail outlets to airlines and freight firms — as those loans have soured.
The trend, of course, is hardly wanted by banks, which have little understanding or interest in owning and operating such businesses.
As Reuters reported last week, Sberbank — now the owner of three of the country’s largest retailers, as well as a large oil company — was hoping to sell such assets within the next two to three years.
But, as Vienna-based analysts JBC Energy noted on Monday, the above does reflect an interesting new structural dynamic for Russia’s core national industries. In energy, at least, it marks a clear reversal of the trend observed during the country’s last recession, which saw a stark flow of oil wealth into private hands.
This time round, the analysts believe seized oil assets will most likely end up flowing back into government hands.
As the JBC explain:
Smaller independent players are particularly affected as they lack economies of scale and, more importantly, state support. The group’s biggest challenge is the refinancing of outstanding debt. Strapped for cash, smaller players are forced to cede their assets.
These are held as collateral under their loan agreements with predominantly Russian banks. Although most distressed assets land directly with the state-run banks, some end up with prominent private financial institutions. Among the latest victims in the illiquidity saga is the independent upstream player Timan Oil & Gas, the equity of which is about to be transferred to a prominent private Russian institution, the National Reserves Bank.
Meanwhile, although banks can help solve illiquidity problems, their lack of industry expertise will pave the way for partnerships with industry heavyweights or the outright transfer of their newfound oil acquisitions to the state-run majors.
That trend might also, by the way, be applied to mining assets too. As Alfa Bank noted in its Monday report:
The Ministry of Industry indicated its support for state guarantees in the metals and mining sector, specifically citing RUB30 bln or approximately $900 mln of support for Mechel. This mirrors the amount discussed between Mechel and the government three weeks ago, and indicates the likelihood that the financing has already been agreed on at the highest levels, and is now being implemented by the relevant government agencies.
Related links:
Russia’s Lebedev nets up to 64 percent in Timan Oil – Reuters
Putin Orders State Banks to Support Mechel’s Elga Development – Bloomberg
Russia govt pledges support to Mechel -paper - Reuters