What will the US sanctions mean for Vnesheconombank

One mention of VEB in the draft law on sanctions caused the sale of the foreign debt of the state corporation
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All operations and all VEB's property can be blocked if they have anything to do with the United States or American citizens, according to a bill published on August 14 on the website of the US Congress, prepared by Republican Lindsey Graham. In addition to VEB, similar measures are proposed for Russian state-owned banks: Sberbank, RSHB, VTB, Gazprombank, Promsvyazbank and Bank of Moscow. On August 8, the newspaper Kommersant published a press release from this bill.

VEB's entry into the list of organizations that can be frozen assets and operations in the US does not mean that it will happen, because Graham's bill must first become law, says Alexander Losev, the General Director of the Sputnik-Capital Management Company. It is also unclear what kind of sanctions can be subjected to VEB: blocking (SDN - Specially Designated Nationals) or sectoral (SSI - Sectoral Sanctions Identifications). The decision on the type of sanctions is taken by the US president, unless clarifications are spelled out in the law, says Paragon Advice Group partner Alexander Zakharov.

In July, at least six bills on various sanctions were introduced in the US Congress, therefore it is rather difficult to assess the probability of passing the Lindsey Graham bill, Zakharov notes. "Everything depends on the activities of the lawmaker, on how he will form a pool of interested members of the House of Representatives and the Senate," the expert explains.

VEB in America

There are no public data on VEB's accounts and assets in the US. But both the liabilities and the assets of the state corporation have a dollar component. VEB's loan portfolio by 32.3% is formed from US dollars, according to the presentation of VEB as of March 31, 2018. This amounts to approximately 580 billion rubles.

It can not be ruled out that in the second quarter the credit portfolio was replenished with debts of UC Rusal - after the company refused funding in Promsvyazbank, an interlocutor close to VEB said. Prior to the April sanctions against UC Rusal, VEB credited the company for 100 billion rubles.

In liabilities VEB has its own Eurobonds, intended for both the external and the Russian market. Their total volume is about 600 trillion rubles. The dollar-denominated bonds of VEB and VEB-leasing, which are now in circulation, account for $ 6.2 billion, according to Bloomberg terminal data, senior analyst for financial markets of Raiffeisenbank Denis Poryvay.

For VEB's securities, there was enough information even about the alleged sanctions, so that investors started selling them, says Losev. "The fact is that many funds and investment banks risk management is configured in such a way that even the probability of getting the organization under sanctions forces sell its papers, because for circumventing or ignoring the sanctions or requirements OFAC, the US Treasury also relies on sanctions against violators and large cash fines, "- explains Losev.

Quotations of eurobonds during the week from August 6 to 12 showed a noticeable decline. For example, for the issue of a Eurobond with redemption in 2025, the price fell from 106% to 97.83% of the face value, which corresponds to a yield of 7.25%, says Poryvay. The yield of ruble bonds has grown by 50-90 basis points, notes Losev. "Such indicators can not yet be called a strong sell-off, but the movement has already begun," the analyst notes.

Investors remember how, after the sanctions imposed on April 6, Clearstream Clearing System announced that it refuses to pay payments on securities of sanctioning companies. Payment of the nearest coupon on UC Rusal bonds was due on May 3. As a result, investors received this money.

The clearing company Euroclear will settle accounts with companies' securities from the new SDN authorization list only in manual mode. "I think that investors believe that in any case VEB will find a way to pay off investors on foreign currency debts, as it was with UC Rusal," Poryvai said.

Past Sanctions

VEB is under sectoral sanctions since 2014, and its subsidiaries - since mid-2015. After the introduction of sectoral sanctions, VEB is limited in attracting capital from abroad, which it was actively engaged in earlier. In this regard, its debt for external instruments is declining, and for domestic instruments, it is increasing.

In 2013, VEB attracted 147 billion rubles for Eurobonds, 89 billion rubles from the OECD countries, in 2012 - 48 billion and 75 billion rubles, respectively, and in 2011 - 36 billion rubles through Eurobonds and from the OECD, if not to take currency revaluation, the figures show the director of the group of ratings of financial institutions S & P Sergei Voronenko.

"Over the period 2015-2017, VEB reduced the ruble equivalent of the debt on Eurobonds by 129 billion rubles, loans from banks of the OECD countries - by 341 billion rubles, while increasing loans in the domestic market by 161 billion rubles," - said Voronenko.

After the closure of the foreign capital markets, VEB receives assistance from the government, which also includes debt repayment. In particular, for 2016-2017 VEB received about 253 billion rubles.

By the end of this year, it is necessary to pay off Eurobonds for $ 850 million, the remaining payments fall from 2020 to 2025, says Moody's analyst Lef Dorf. In 2020, VEB will have to repay $ 1.6 billion, in 2021 - $ 600 million of foreign currency bonds for Russian investors (domestic eurobonds), in 2022 - $ 1 billion eurobonds and $ 550 million of domestic bonds, in 2023 - $ 1.76 billion eurobonds.

"Since 2007, the government has been providing substantial support to VEB, providing capital, liquidity, and targeted support in the form of loans and deposits for various targeted programs. Therefore, if necessary, the state support of VEB can be expanded, "concluded Dorf. The press service of Vnesheconombank did not respond to the request of Forbes.