Russia appeared on the brink of averting a widely anticipated debt default on Friday after claiming it had made two overdue dollar bond payments previously blocked by western sanctions, despite what the central bank governor described as “a zone of colossal uncertainty” in the economy.
In the latest twist to the saga over whether Russia will renege on its debts for the first time since 1998, the country’s finance ministry said the two payments — totalling $649mn and originally due on April 4 — had been sent to Citigroup in dollars, the paying agent responsible for distributing cash to bondholders.
“The finance ministry has the resources and from an economic point of view there can be no talk of any default,” said Elvira Nabiullina, head of the central bank. “But we are witnessing difficulties with payments,” added Nabiullina, who was recently appointed to a third term in the role.
After US authorities earlier this month stopped American banks from processing the payments, Russia said it would instead use roubles, which is not permitted by the terms of the bonds. Moscow then claimed it had fulfilled its obligations and threatened to take legal action if sanctions forced it into default.
Friday’s statement suggests a change of tack that could dodge default if investors get their dollars before a 30-day grace period that expires on May 4. Citigroup declined to comment.
Russian bonds, which had traded at levels indicating investors assumed default was all but inevitable, rose sharply in price. Brokers offered to sell the April 2022 bond, which had been due for repayment this month, at prices as high as 80 cents on the dollar. Longer-dated Russian dollar bonds traded at between 35 and 40 cents on the dollar, up between 10 and 15 cents on the day.
“It looks like there’s no default, for now,” said one bond investor.
A US official said the debt payments announced on Friday were made using dollars that were in Russia, and not immobilised funds in the US, meaning they would no longer be available for Moscow to keep funding the war in Ukraine. The transaction was not specifically authorised by the US, but was allowed under a carve-out for such payments put in place as part of the sanctions regime.
The use of scarce dollars for debt repayments marks a “meaningful win” for US authorities, said Paul McNamara, an emerging market bond fund manager at GAM. “It also implies that Russia is making provision for something other than an indefinite freeze of external financial relations.”
Even if the late payments arrive before the grace period ends on Wednesday, it is still unclear how Russia will go on servicing its foreign debt beyond May 25, when an exemption in US sanctions that allows US investors to receive Russian interest payments is due to expire.
Also on Friday, Russia’s central bank cut interest rates by 3 percentage points to 14 per cent. The central bank said yearly inflation rose to 17.6 per cent in April and would reach 18-23 per cent in 2022. It expects the economy to contract 8 to 10 per cent this year.
Nabiullina said “transitory” high inflation was an “inevitable” part of a “structural transformation” of the economy after sanctions cut Russia off from global markets.
“That’s why we’re not trying to bring inflation back to the target at any cost,” she said. “Overly squeezed demand would freeze the structural transformation. And then we’d have an economy where prices are growing slowly, but the assortment of goods and services would be all the more limited and some essential goods would be totally unavailable,” she said.
Source Here: ft.com
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EY: a Management Consultant’s PowerPoint Guide to Splitting Up
EY is hatching a pioneering split of its audit and advisory operations. It is a U-turn but a welcome one that — if it materialises — may set a template for its fellow Big Four audit firms. Presumably EY will start, as must all management consultants worth their salt, with a PowerPoint presentation. Lex previews the slide deck.
Slide 1: Venn diagram. EY’s global workforce of 312,000 does not coalesce into two buckets of audit and consultancy. In the middle sit a whole slew of bodies whose function serves both arms: in tax, pensions, IT, cyber security, industry expertise and other skill sets. Putting a line down the middle and sending half into the audit arm and the remainder into consultancy will not fly. Creating a third arm, which both sets can tap, seems messy.
Slide 2: Metaverse-mapped 3D flow chart (VR goggles provided). Take 140 countries, with — conservatively — twice that number of interested regulators and as many different legal structures. Add 13,000 partners, all of whom will have their own vested interests in terms of ring fencing liabilities and tapping income flows. They hold far more muscle than would be the case in your average public company: directors are replaceable, partners are the business.
Slide 3: Scatter plot chart. Severing ties with audit eliminates conflicts and thus widens the field of tech players EY can team up with to service clients. But that leaves it competing with the big integrated tech-savvy companies such as France’s Capgemini and Intel, Cognizant and Accenture (which has a two-decade head-start in going it alone) in the US.
Slide 4: Winners and losers. Slipped in at the end, because there will be many. In some ways Big Four firms resemble McDonald’s, or any other franchise. The local rainmakers draw in the business and a portion of fees go out for the name over the shopfront and technology. Asymmetric fiefdoms inevitably mean some partners have more to lose than others.
Tombstone: RIP the partnership model. It will take some fiendishly clever footwork to avoid tearing up the structure that has underpinned the industry through history. Client work is a doddle compared with this one.
Original Source: ft.com
EY Explores IPO or Partial Sale of Global Advisory Business
EY is exploring a public listing or partial sale of its global advisory business as part of the most radical transformation of a Big Four accountancy firm in two decades, according to people with direct knowledge of the matter.
A stake sale or listing would raise the prospect of a massive windfall for EY’s existing partners who own and run the firm, reminiscent of the IPOs of Goldman Sachs in 1999 and Accenture in 2001.
The 312,000-strong firm, which along with Deloitte, KPMG and PwC dominates the accounting industry, is considering a historic break-up of its business as a solution to the conflicts of interest that have dogged the profession and attracted regulatory scrutiny.
EY’s advisory businesses, which offer tax, consulting and deals advice, generated revenues of $26bn last year and employ 166,000 advisers.
EY’s audit business, which generated revenues of $14bn last year, is likely to remain as a partnership following any break-up. Some advisers would shift to the audit side to support its work in areas such as tax, said people with knowledge of the details.
The newly independent advisory business would have the option of incorporating as a company, allowing it to take on external funding through a sale or IPO. Fresh investment could help it to boost growth and compete with larger consulting businesses such as Accenture, which reported revenues of $51bn last year and is valued at about $200bn on the New York Stock Exchange.
A break-up would also free EY’s advisory business to win work from companies audited by EY, opening up a swath of potential new clients that are currently off-limits under independence rules.
EY was being advised on its planning by JPMorgan and Goldman Sachs, people with knowledge of the matter said. The banks declined to comment.
The firm’s senior partners have yet to make a firm proposal to partners on whether to proceed with a restructuring and exactly what form it should take.
The sale of part of the business to external shareholders would be a radical departure. A senior partner at another firm said that selling parts of the business and handing the windfall to partners would significantly alter the existing structure where “you come in naked and you leave naked” with the business’s capital preserved for the next generation.
The Big Four are structured as networks of legally separate national member firms that pay a fee each year for shared branding, systems and technology. The set-up has prevented them from taking on external investment and made it difficult to push through radical overhauls, which require a broad consensus across the business.
However, EY is seen by many accountants as being best placed among the Big Four to push through significant international changes because its global bosses have greater influence than at competitors, where rank-and-file partners have more power.
Partners at EY will nonetheless have the opportunity to vote on any changes. Asked whether EY might line up investors before a ballot, a person with knowledge of the matter said: “We’re looking through those options. We’ll be looking to see what’s in the right interests of all the partners.”
EY and other professional services firms have “the doorbell ringing all the time” from private equity firms seeking to invest in parts of their business, said this person. An IPO would be more difficult to pull off than a private stake sale, the person added.
A split by EY would force its rivals to decide whether to follow suit. On Friday, PwC and KPMG both said they believed in the benefits of having their audit and consulting businesses under one roof.
PwC said it had “no plans to change course”. KPMG said a multidisciplinary model “brings a range of benefits”. Deloitte did not comment.
A break-up would probably attract dissent from some partners. Auditing has historically had lower profit margins and could struggle to recruit and retain staff, especially expert partners who make most of their money from consulting but provide crucial expertise in areas such as tax, said Big Four partners.
EY declined to comment on the possibility of a stake sale or an IPO. After news of its break-up planning on Thursday, global chief executive Carmine Di Sibio told staff in an email on Friday that “no . . . decisions have been made”.
Original Post: ft.com
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