In just one week, Russian President Vladimir Putin has caused hundreds of deaths and wreaked havoc in the lives of millions. He has also begun the destruction of the Ukrainian and Russian economies. Making Russia a global economic pariah is a dubious achievement, and it will take years for the citizens of both countries to recover.
Sanctions Are an Economic Siege
Russian President Vladimir Putin’s unprovoked invasion of Ukrainian has led to global economic sanctions tantamount to an economic siege. Starting on February 21, the US imposed sanctions under Executive Order 14065 “prohibiting all new investment, trade, and financing by US persons to, from, or in the so-called Donetsk People’s Republic (DNR) or Luhansk People’s Republic (LNR) regions ” of eastern Ukraine.” Three days later, the US imposed additional sanctions in the form of sweeping financial sanctions and stringent export controls. And on Thursday, the US government imposed “blocking sanctions on Russian defense entities, export controls targeting oil refining, a key revenue source that supports Russian military, restrictions on Belarus to choke off its import of technological goods in response to its support of Putin’s war of choice,” and has banned “Russian aircraft from entering and using domestic US airspace.” Thus far, thirty-five countries which include Australia, Canada, Japan, 27 countries of the European Union, New Zealand, Switzerland, Taiwan, the US and the UK. have imposed sanctions and export controls targeting Russia. Brazil, China, India, Mexico, Pakistan and South Africa have not imposed sanctions yet.
Divestments Are Quickly Rising
The private sector globally has also moved quickly to punish Russia. At the time of this writing, over 30 internationally well-known companies from every sector, including energy, and financial institutions had pulled out of Russia. This has all happened in five days. Since executives fear legal and reputational repercussions from the sanctions, many more will follow.
This economic siege has caused a deluge of credit ratings downgrades of Russian sovereign and corporate debt issuers. Every announcement of a downgrade and even of a negative credit watch is leading to an imminent default of sovereign, corporate, and financial institution issuers. Downgrades, not to mention defaults, raise the borrowing cost of issuers. Even under normal circumstances, increased borrowing costs makes it difficult for issuers to stay afloat. Now, this is practically impossible, since the Russian economy is under siege caused by continually increasing and intensifying sanctions and divestments.
On Friday, February 25th, S&P Global Ratings was the first rating agency to open the flood gates of Russian downgrades. In just one week, Russia’s local and foreign currency sovereign debt rated has plummeted from investment grade BBB- to CCC-, a level showing that a default is imminent. S&P also announced that it also downgraded its “transfer and convertibility assessment to ‘CCC-‘ from ‘BBB-‘. The ratings remain on CreditWatch with negative implications.” CreditWatch Negative means that S&P could downgrade Russian debt even further.
Tuesday, the Bank of Russia banned coupon payments to foreign owners of ruble denominated bonds. The next important date to watch out for is March 16th when another Russian bond coupon payment is due.