The City rushed yesterday to cut ties with Russian companies hit by US sanctions as escalating hostilities between the White House and the Kremlin and threats of military attacks on Syria reverberated across world markets.
Shares fell in companies with links to Russia or that could suffer in the fallout from an attack on Syria, while commodity prices sank and the oil price jumped amid fears that the world’s supply could be hit.
America ratcheted up the pressure on Russia last Friday when it released a sanctions list of wealthy Russians and their businesses and ordered US companies to end their relationships with them by May 7. It threatened to penalise non-US businesses that facilitated their activities using assets such as the dollar. The move was a retaliation for perceived Kremlin meddling in the presidential election.
President Trump escalated tensions further yesterday by promising imminent American bombing in Syria, in this case in response to an apparent chemical weapons attack.
Among the most significant events in a frenetic day of activity were:
•The Russian rouble suffered its fourth day of heavy losses. At one point a dollar could buy as many as 65 roubles, an 11 per cent drop in its value since the sanctions were imposed;
•The price of a barrel of Brent crude surged by more than 1.8 per cent to $72.35, its highest level since November 2014;
•The price of aluminium jumped to a three-month high of above $2,277 a tonne after the London Metal Exchange and Chicago Mercantile Exchange said that they would not accept metal produced by Rusal, one of the companies on the sanctions list;
•FTSE Russell, the index provider owned by the London Stock Exchange, deleted Rusal and En+, an energy business controlled by Oleg Deripaska, both on the list, from all its indices so that tracker funds would not be forced to buy shares;
•Moody’s and Fitch, the credit ratings agencies, withdrew their ratings for Rusal, although Moody’s cited “business reasons” for the decision and did not refer to the sanctions;
•Russia promised to provide short-term financial liquidity, and possibly other help, to companies on the sanctions lists, including Rusal, which has warned that it could default on its debts.
The implications of the sanctions against Russia in London are potentially highly significant. The Financial Conduct Authority, the main City regulator, is reviewing what the impact is for UK-listed companies.
The regulator declined to be drawn last night on whether it might have to scrap the London listings for En+ securities, saying only that it was a matter for individual investors to decide whether they were comfortable with their exposures to the company.
As well as doubts about whether investors can hold shares in a company subject to a sanction, there are questions about whether banks can act as brokers or advisers or can help these companies to raise money and whether analysts can make recommendations.
Credit Suisse has resigned as one of En+’s brokers and yesterday analysts at BMO Capital Market suspended their coverage of the company.
London shares were caught up in the fallout. Coca-Cola HBC, which has invested heavily in a bottling production facility in Russia, lost more than 4 per cent of its value. International Consolidated Airlines, owner of British Airways, and Easyjet, the budget airline, both fell 1.8 per cent amid worries that they might have to divert flights in the event of military action against Syria.
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