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Capital Markets

Russia: Marx to market solutions

Full of value or close to collapse?

Radical times require radical thinking. With the global economy facing its greatest challenge since the Great Depression of the 1930s, the need for revolutionary solutions to pressing problems such as looming debt repayments has arguably never been greater. So far at least, the response of the authorities in the Kremlin to the thorny issue of the mountain of Eurobond debt raised in recent years by Russian corporates that falls due in the near future has been surprisingly conventional. Under the present plans the government has been lending money to leading corporates through Russian development bank VEB to help them repay their foreign obligations. In some quarters this has been interpreted as an oligarch bail-out package, effectively rescuing some of Russia’s richest businessmen from the ignominious fate of having some of their most prized assets seized by foreign bondholders.

But Neil Smith, chief investment officer of Florin Capital Management, a Moscow-headquartered fixed-income fund with $85 million under management, argues that in practice the funds disbursed through VEB are a blank cheque written by hard-pressed Russian taxpayers to the western money managers. In Smith’s view, rather than spending potentially hundreds of millions of dollars helping to finance the lavish lifestyles of fund managers who live outside Russia, the Russian government should be pursuing a much more aggressive asset liability management agenda and calling the hedge funds’ bluff.

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