The Russian invasion of Ukraine in February 2022 has left financial investment prospects in Russia under great uncertainty. Numerous sanctions imposed on Russia since the beginning of 2022 played an excessively punitive role on its financial system, eventually making it one of the least attractive and high-risk destinations for financial investments. While the effect of sanctions is yet to be evaluated, it can be seen that over the past few years, financial assets’ worth in investment funds has been steadily growing and reached 5.35 trillion Russian rubles by the first quarter of 2021.
Investment funds and M&A
The total value of foreign direct investment (FDI) projects in Russia saw a slight decline in 2021 compared to the previous year, while FDI outward flows from the country grew significantly. Information and communication technologies have remained the most attractive industry for venture capital investments year-over-year.
As for mergers and acquisitions, after amounting to roughly 100 billion euros in transactions in 2012, figures oscillated around 40 billion euros annually during the following years. The oil and gas industry has been the dominant industry by deals value in this market. In 2021 TAIF Group – the Russian investment holding and oil company headquartered in Kazan – was fully acquired by Sibur Holding, becoming thus the largest M&A deal in the country with over six billion euros of value.
Bonds market
With the strongly debilitated financial system by large-scale sanctions imposed on the country since the beginning of 2022, in addition to the frozen foreign assets of the Central bank, with no access to the SWIFT system, and ongoing war expenses, the risk of Russia’s failure to pay its government bond obligations remains daringly feasible. Apart from the fact that ruble depreciation and its further fluctuations had a direct effect on the bonds market – mostly issued in national currency, the market was also hit by the U.S. ban which aims to prevent its citizens from Russian bonds and stocks trading.
As of September 2021, the total value of issued bonds in Russia grew to 55 trillion Russian rubles. However, one-third of bonds in circulation at that time had no rating. Only 20 percent of them were rated with either AAA or AA. The annual yield on long-term government bonds has dropped slightly over the past few years, measuring 8.44 percent in 2021.
