Newfleet Reaction to U.S. Sanctions on Russia
Late yesterday, the U.S. announced new sanctions against Russian corporations and individuals as a result of continued instability in Ukraine.
Included for the first time were sanctions against four large eurobond issuers: Russia’s third largest bank Gazprombank, state-owned bank Vnesheconombank (VEB), its largest oil producer Rosneft, and its second largest gas producer Novatek. The new sanctions effectively block these issuers from issuing new debt and equity in the U.S. and more realistically constrain issuance in the international capital markets as well.
What does this mean for investors? Transactions in existing issues are unaffected, and debt service is expected to continue. We expect a correction in Russian asset prices as a result of this news. However, the added sanctions do not imply an impending default by any of the affected issuers; in fact, we believe all of them will retain ample access to funding sources.
Prior to yesterday’s announcement, we had already been selectively reducing Russian risk in our portfolios as we felt valuations were stretched given the ongoing crisis. Our total exposure to the directly impacted issuers is relatively small and manageable, representing less than half a percentage point of total assets across our core multi-sector portfolios.
We will continue to closely monitor this situation as it evolves and will make portfolio changes if warranted only after thorough discussion and analysis.