US Businesses Want to Stay in Russia, Communication Channels Remain Active, Investor Says

WASHINGTON (Sputnik) - US businesses want to remain in the Russian market and the business channels of communication are "very active," Director of Navigator Principal Investors LLC Kyle Shostak told Sputnik.

"US businesses, including pharmaceuticals, consumer goods and entertainment, are interested in staying in Russia," Shostak said. "The St. Petersburg economic forum will see a delegation of US business representatives. Business channels of communication exist and remain very active."

Shostak said he puts the foreign businesses that left the Russian market in two groups.

"One is doing so because of the perceived moral reasons and the challenges that the current conflict represent to their values," he said. "They will probably not come back to Russia any time soon."

However, Shostak said there is also another group that is leaving because of pressure by shareholders, but have a genuine intention to "wait the situation out, see the active stage of the conflict being resolved either way and find a suitable and safe window of opportunity to come back."

Shostak pointed out that often times such companies rename their Russian operations and transfer them to their Russian managers or partners.

"This group will be returning quicker than many think," he said. "Obviously, they face multiple challenges, from payment to logistics, but ultimately, from a pure commercial viewpoint, will be able to rip huge benefits of being right there on the ground in the much narrowed and less crowded space."

Shostak noted that many European companies from Germany, Italy and France truly want to stay in the Russian market and will have to walk a very difficult path trying not to lose their customers in Russia.

On February 24, Russia launched a special military operation in Ukraine after the breakaway republics of Donetsk and Lugansk requested help to defend them from intensifying attacks by Ukrainian troops. The collective West responded by imposing comprehensive sanctions against Russia, prompting many foreign companies to suspend or downsize operations in the country.

Among a flurry of disinformation since, Russian Finance Minister Anton Siluanov said that reports about the default on Russian Eurobonds is not true. Foreign investors, including those from the United States, could not receive payments due to the illegal actions of the US authorities and banks, so all creditors should redirect their claims to them.

Shostak said one could argue that the pending sovereign and corporate defaults will wipe out Russia and its domestic companies but however scary the circulating default scenarios may be, much if not all of its effect has already been priced in by the market.

"First, investors who hold Russian assets know that this default is purely artificial, caused by geopolitics and has nothing to do with the inability of the sovereign or the corporates to service the debt," he said.

Shostak underscored that Russia, even after the West froze more than half of its reserves, has significant assets to continue to service its obligations.

"Second, Russia is wiling to continue to do so by offering a scheme whereby the investors will receive rubles on specially designated accounts, akin the ones used back in the 1990s and early 2000s," he said. "Thirdly, the country is on track to receive record amount of hard currency income from the sales of commodities across the spectrum. Finally, Russia will not be tapping foreign debt markets in 2022 and probably sometimes thereafter."

Shostak also pointed out that with all the sanctions imposed on the Russian economy, an artificially-induced default will not make any difference.

"Neither will the default have any effect on the domestic industries and/or consumers who operate in the ruble zone. They simply won't feel the difference," he said.

Shostak noted that another strong economic factor favoring Russia’s economy is the success to convince various offtakers of Russian commodities to pay in rubles that will significantly increase the value of the ruble.

On April 4, the Russian Finance Ministry was supposed to make payments on sovereign Eurobonds of the Russia-2022 and Russia-2042 issues, however, due to a foreign bank’s refusal to execute the orders in a foreign currency, it fulfilled its obligations in rubles. Yet, the rating agency S&P downgraded Russia's long-term and short-term foreign currency credit ratings to "SD" (selective default). Sulianov said this cannot be considered a default, since Russia has the means to fulfill its obligations.

In order to protect the rights of investors, Russia, as a responsible borrower, took additional measures by reserving the necessary amounts in rubles in a Russian depository, he added.