Moscow says nyet to dollar payments to Korea
With Moscow prohibiting dollar payments to creditors in “unfriendly” countries, Korean companies doing business with Russia are likely to suffer losses.
Russia issued Tuesday a list of unfriendly nations that imposed or joined sanctions that followed its invasion of Ukraine. The list included Korea, Ukraine, the United States, the European Union, Japan, Canada, the U.K., Australia, New Zealand, Singapore and Taiwan.
At the same time, Moscow temporarily prohibited Russian companies and government entities from making payments in dollars to creditors in unfriendly countries, guaranteeing problems for local companies doing business with Russia, as well as bondholders and stockholders invested in the country.
Following the Feb. 24 invasion of Ukraine, the Russian ruble plunged to a record low of 153 against the dollar Monday and bounced back to 133 rubles per dollar on Wednesday. Its value against the U.S. greenback has depreciated nearly 50 percent since the start of this year.
Moreover, Moscow said it will use the exchange rate that its central bank announces at the start of every month, not market rates. The Russian central bank's exchange rate was 93.6 rubles against the dollar, some 60 percent higher than the global market rate.
That means that if a company holding Russian bonds worth $10,000 gets redemption payments in rubles using the Russian central bank’s exchange rate, the payments would be only 936,000 rubles. With the market exchange rate, $10,000 is currently worth 1.33 million rubles.
Korean companies, especially the three major shipbuilders – Korea Shipbuilding & Offshore Engineering, Daewoo Shipbuilding and Marine Engineering and Hyundai Heavy Industries – may face difficulties getting paid by Russian customers.
The total amount of the three major shipbuilders’ contracts in Russia is estimated at 8 trillion won ($6.5 billion).
Global investment firms are cutting ties with Russian companies.
JPMorgan announced Monday that it would exclude Russian sovereign and corporate debt from all of its fixed-income indexes, including the Emerging Market Bond Index, the Government Bond Index-Emerging Markets and the Corporate Emerging Market Bond Indices, starting from March 31.
“When Russian debt is excluded from the indexes, all the ETFs tracking the indexes will halt purchasing the Russian bonds,” said Park Seok-hyeon, an analyst at Woori Bank.
“It shows that JPMorgan considers the investment risk in Russia to be that grave.”
A possible Russian bond default is the main reason behind the decision.
Russia has government bond payments worth some $700 million due March 16. JPMorgan warned in a March 6 report that the likelihood of Russia defaulting on its debt is growing due to Western countries’ sanctions.
Morgan Stanley Capital International, or MSCI, also removed Russia from its Emerging Market index, saying that “MSCI Russia Indexes will be reclassified from Emerging Markets to Standalone Markets status” starting from Wednesday.
BY JEONG JIN-HO, YEOM JI-HYUN [email@example.com]