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10 Jun, 2010 13:42

Russian companies facing bankruptcy

About one third of Russian firms lost money in the first quarter this year. Many are trying to negotiate new loans, but the slow economic recovery means covering interest payments is tough.

Russia's only tin producer, Novosibirsk Integrated Tin Works, declared bankruptcy this week – brought down by $40 million debts. It's part of a growing wave of defaults.

The number of companies filing for bankruptcy rose by 15% last year. It's a growing trend, with no sign of a slowdown this year, says Douglas Dwyer, Managing Director at Moody’s Analytics.

“Default risk occurs across all the sectors of the Russian economy and default risks are relatively high in Russia relative to other nations that we are watching. It’s naturally a natural resources economy so it’s vulnerable to oil prices – changes in oil prices.”

Moody's Analytics, a world provider of risk management, has been monitoring Russia since 2002 – through the fastest growth of modern times.

Since the financial crisis hit, banks have competed to attract quality borrowers – but this is still an area of concern for regulators, says Robert King, Head of EMEA sales at Moody’s Analytics.

“There’s increasing focus from governments and regulators on improving risk management as many of the banks around the world including Russia are looking to improve their risk management practices.”

Compared to western countries Russia has seen rising default rates in the past few years. But analysts, like Douglas Dwyer, say this is a feature common to economies undergoing rapid change.

“Relative to China the default rates are less elevated, but it is an emerging market and we do see default rates are more elevated in emerging markets throughout the world.”

Moody's has constructed a risk calculator for China, which estimates the probability of a company defaulting based on the historical default rate of similar firms. It will release a similar calculator for the Russian market later this year.