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Despite some muddled explanations from its administration on how Russia may or may not be in fact filing for private sector (but definitely not sovereign) bankruptcy, this story shows why some sort of default is imminently unavoidable as essentially the entire Russian private sector is now shut out from the primary bond market, with no foreign bond issues since August 2008.

Russian companies, the biggest emerging-market borrowers during the last three years, are shut out of the international bond market after yields jumped sixfold since August amid plunging energy prices and a weakening ruble.

No Russian company has raised money through foreign bond sales since August, compared with $80 billion raised by more than 200 companies in Latin America and Asia outside of Japan, according to data compiled by Bloomberg. Yields on bonds due next year from Moscow-based Transcapitalbank and JSC AIKB Tatfondbank in the Russian republic of Tatarstan are trading at yields above 80 percent, up from 12 percent in August.

“The primary market is dead,” said Stanislav Ponomarenko, a fixed-income analyst at ING Groep NV in Moscow. “I wouldn’t be too surprised if there are no bond deals done by Russian corporates for most of 2009, if not the entire year.”

The credit squeeze will force companies to rely on government bailouts to refinance their debt or face default, according to MDM Bank, VTB Group and Commerzbank AG. International banks proposed talks with Russian companies that owe $400 billion in the next four years, the Russian Association of Regional Banks said yesterday.

Is it too early to watch the fire? Semi-government owned Troika Dialog of course seems to think so. After all, there's not a lot of advisory and broker dealer business going down when your country is bankrupt.

While investors “fear massive defaults” on some of the $100 billion of Russian debt due in 2009, the concern is “overstated,” Troika Dialog analysts Andrey Kuznetsov and Kingsmill Bond in Moscow wrote in a research note on Jan. 19. Companies have between $20 billion and $30 billion of their own funds, will borrow between $30 and $40 billion from the government and will rollover another $30 to $40 billion of debt this year, according to the note.

“The shortfall is likely to be in the region of $10-$20 billion, but this is more likely to damage the weaker credits among smaller banks” rather than big corporations, the Troika Dialog analysts said.

Basically, the government will have to foot a massive debt maturity bill at a time when it is spending $10 billion a week to make sure the rubble doesn't have a hundred handle. The rapidly diminishing bank reserve can only hold so long, and as head of fixed income at MTM in Moscow Mikhail Galkin says, "If a company doesn't have access to state funds, it is in deep trouble." SO essentially forced nationalization, but when you aren't lucky enough to be printing dollars, it gets a little tough. As Putin evaluates his options and realizes that the only outcome is oil over $80, we would not be surprised if we see a massive rally in oil over the next 3 months for one reason or another.

Source: Russian Bond Market Facing Yields Above 80%