The Russian government has few good options as it races to come up with measures to assist tycoons hit by a new wave of U.S. sanctions.
With Washington’s move to blacklist some of the country’s biggest companies roiling financial and metals markets, the Russian government has tried to provide reassurance that it will protect them. But even its stable of well-capitalized state-controlled banks may not be willing to take the risk of continuing to do business with the industrial giants targeted by the U.S. Friday.
The government is focusing its efforts on billionaires Oleg Deripaska and Viktor Vekselberg but hasn’t settled on what form aid will take, according to a senior official involved in the process.
The latest U.S. moves marked the first time that major publicly traded Russian companies with global reach were hit with the restrictions, aimed at punishing Russia for aggressive policies from Ukraine to Syria. They helped drive the MOEX Russia Index of stocks down the most since March 2014, as investors worried that spiraling tensions between Moscow and Washington could fuel even wider limits in the future.
“A precedent has been set,” Citigroup analyst Barry Ehrlich said in a note Monday. If Rusal can be hit, “any Russian company can be included” in the future, he added.
Shares Drop
Shares in aluminum producer United Co. Rusal and holding company En+ Group Plc, which were both sanctioned along with Deripaska, extended their declines. En+ was down 17 percent in Moscow after the U.K.’s financial regulator suspended trading. Rusal fell 25 percent in Moscow as the company warned that the sanctions could trigger technical defaults on its loans. Aluminum prices jumped as much as 4 percent on fears that that limits could prevent many foreign buyers from dealing with Rusal.
Sulzer AG, a Swiss-based industrial company owned by Vekselberg, moved quickly to insulate itself, buying back enough shares to reduce the state held by the tycoon’s sanctioned holding company to below 50 percent and thus escape the impact.
But Deripaska’s sprawling and heavily indebted industrial empire -- key components of which were singled out for sanctions -- will be harder to protect, according to bankers and lawyers.
“The Kremlin will apply the ‘we do not give up our guys’ rule in response to American sanctions and will try to help Deripaska’s business to survive,” Kirill Chuyko, chief of research in BCS Global Markets said by phone. “But that will be difficult to do as even state banks can’t really help Rusal or En+ or they may be sanctioned in return.”
A sale that took the companies out of Deripaska’s hands also wouldn’t necessarily solve the problem, since they were specifically sanctioned by the U.S., according to Chuyko.