Russia could face a wave of corporate bankruptcies this year as the share of enterprises with risky levels of debt in total corporate revenue doubled last year, a leading think tank advising the government said in a research note.
The warning emphasizes the scale of high inflation and slowing growth, which could have made Russian President Vladimir Putin concerned about distortions in the nation’s wartime economy.
“The Russian economy is facing the threat of a large-scale surge in corporate bankruptcies,” TsMAKP researchers wrote.
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They said that by the end of last year, the share of companies represented in total corporate revenue that had interest payments at a risky level of two-thirds of adjusted earnings, was likely at 20 percent.
The Russian central bank hiked its benchmark interest rate to 21 percent last year, the highest since the early 2000s, to fight inflation which hit 9.5 percent in the year, exceeding the government’s and the central bank’s forecasts.
Many companies have complained about high interest rates, which raise their borrowing costs. Russia’s largest mobile operator, MTS, in November last year blamed an 88.8 percent drop in third-quarter net profit on increased interest expenses.
The state-owned monopoly Russian Railways is facing a US$4 billion rise in interest payment costs this year.
TsMAKP researchers also pointed to a surge in the share of firms experiencing non-payments from their counterparties for supplied goods and services, which rose to 37 percent of total revenue in the third quarter of last year from about 20 percent in 2021 to 2023.
They said many firms preferred to deposit cash at banks amid high interest rates or buy risk-free bonds, which also offer attractive interest, while withholding payment to suppliers.
The research indicated that in the current high interest rate environment, the share of companies with working capital profitability that was lower than the risk-free interest rate also doubled to 66 percent of total corporate revenues.
This was stifling investment, the researchers said.
“A slowdown in the dynamics of investments in production facilities and a reduction in the potential for economic growth are already being factored in,” researchers said, projecting a fall in investments to 1.7 to 2.0 percent this year from 7 percent last year.
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