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- Betting on bankruptcy: are companies at risk of default due to the Central Bank's policy?
Betting on bankruptcy: are companies at risk of default due to the Central Bank's policy?
Next week, the Bank of Russia is likely to raise the key rate further - up to 23%, according to forecasts. Meanwhile, even now business is going through difficult times. According to a study by the Center for Macroeconomic Analysis and Short-Term Forecasting (CMACP), the share of troubled companies in the all-Russian corporate universe in 2024 has sharply increased, which is explained by difficult loan payments. Izvestia reports on how dangerous this trend may be, whether Russian companies are threatened by mass bankruptcies and whether the key rate increase is a pro-inflationary factor.
Problematic third
The CICAP survey showed that the share of revenue of Russian companies with debt service problems in 2023 amounted to 12.7%, and in 2024 it reached 30%. And if we take into account rent in addition to interest on payments, such companies become 37.2%. The number of firms that not only have difficulties with payments, but also simply cannot pay their bills is impressive - they are now more than a quarter.
Some industries are suffering more than others. In telecommunications, for example, 68% of companies are experiencing difficulties (as a percentage of total industry revenue). The situation is somewhat better in postal and courier services. In railroads, shipbuilding and aircraft construction this share is 57%. And the best situation is with organizations in the sphere of production of electrical equipment and electronic and optical industry (19% each), as well as with those who provide electricity, gas and water (20%).
It is noticeable how sharply profits have fallen in 2024 due to rising interest expenses. For example, Russian Railways had additional interest payments increase by 4.1% of revenue, resulting in a profit of 3.4%, compared to EBIT of 12% last year. "Rostelecom will pay an additional 6.8% of revenue on interest, and Vimpelcom, with a loss of 9.6% of revenue, will pay 11.1% on top of loans."
In 2024, rates have risen at an average annual rate of 1.6 times, increasing the share of companies at high risk of bankruptcy from 5.8% of total real sector revenue to 12.5%. If rates continue to rise in 2025, there will be 18.9% of such companies. Defaults threaten 61% of courier and postal firms and 49% in air and space transportation.
There are no mass non-payments
Analysts interviewed by Izvestia, however, are not inclined to dramatize the situation.
- Over the last five years, the share of bankruptcies of companies has dropped significantly, and most of them have successfully raised prices by 30% or more after 2022. We see returns on capital above 30% in the machine-building, logistics and financial sectors," says Alexei Kurasov, head of corporate finance at Finam.
According to him, there is a real threat only for large companies in some specific industries.
- We do not expect mass problems with payments of borrowers, but individual stories in large companies are possible. This applies to those who have a share of debt burden higher than 5x to the operating profit and there is a drop in demand, - explained the expert.
We are talking primarily about real estate and automobile industry, where due to the sharp increase in the key rate there is a multiple reduction in demand for purchases in mortgage, leasing or car loans - it will not be possible to compensate income by raising prices.
Undoubtedly, the clouds for corporate borrowers are thickening, but so far it is not necessary to talk about mass defaults, says Natalia Pyrieva, a leading analyst of "Tsifra Broker".
- Today, the market is in preparation for the harsh conditions we will face as early as 2025, and companies are making plans to refinance their debts. At the same time, it cannot be said that it is not growing: in November, the volume of the corporate bond market (at outstanding par value) increased by 995.6 billion rubles, and the trend continues in December," the expert explains.
Natalia Pyryeva emphasizes that companies continue to enter the corporate debt market despite the harsh conditions. Nevertheless, we should not be overly optimistic.
- Indeed, the risks of non-payments and defaults are growing. We do not expect a catastrophe, but we do expect the borrowers' solvency to deteriorate, defaults and defaults to increase. We believe that problems in the market will start to manifest themselves closer to Q2 2025," she added.
However, it is important to keep in mind that not the entire market will be equally bad. There will be companies and sectors with more pronounced problems, such as real estate development and leasing, while healthcare and pharmaceuticals will remain stable.
Is the high interest rate for inflation?
This problem has another dimension. The main objective of the Central Bank's sharp increase in the key rate was to reduce inflation. However, the CMACP analysis notes that the effect may be to some extent reversed. In particular, it is argued that the pro-inflationary impact of rates now even exceeds the importance of wage growth. The contribution of a rate increase in 2024 to the change in producer prices is estimated at a minimum of 4.5-5.5 percentage points, while wages are estimated at 3.5-4.5%. To be fair, producer prices are by no means always transformed directly into consumer prices.
According to Alexei Kurasov, many entrepreneurs expected a reduction in the key rate in the III-IV quarter of 2024, but the Central Bank, on the contrary, raised it.
- Now we are already seeing a sharp rise in prices in some sectors by more than 20% in Q4. On the other hand, currency growth against the backdrop of the key rate hike indicates that investors fear hyperinflation and that bank deposits, despite rates of 18-20%, will be below real inflation. In such a situation, currency purchases are increasing," the financier explained.
In FG "Finam" expect that in the I-II quarter of 2025, a sharp price increase will occur along the chain and in other industries, except for tariff-regulated. And a new growth of 15-20% is expected on July 1. Total real consumer inflation in 2025 may exceed 30%, and a deposit in the bank will give 1.5 times less than buying buckwheat, sugar or cash currency.
At the same time, Natalia Pyryeva says that at the moment the direct effect of high interest rates on inflation has not manifested itself to the desired extent.
- On the one hand, this is explained by a rather long penetration of the rate level into the economy, it can last several months. On the other hand, the prevalence of pro-inflationary factors remains: this is strong consumer demand against the background of rising incomes due to widespread staff shortages and the weakening ruble," she explains.
Nevertheless, the first signs of cooling of consumer lending have already emerged. At the same time, if initially such a trend was formed in the mortgage market, now it is also noticed in the segment of car loans and retail loans.
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