The attack on Georgia raises Russia's Arctic investment costs

Russia's attack on Georgia is increasing her costs of investing in the Arctic, at least temporarily, as Investors quit Russia after Georgia War (Charles Clover, Financial Times, August 21):

Investors pulled their money out of Russia in the wake of the Georgia conflict at the fastest rate since the 1998 rouble crisis, new figures showed on Thursday.

Russian debt and equity markets have also suffered sharp falls since the conflict began on August 8, with yields on domestic rouble bonds increasing by up to 150 basis points in the last month....

The tight credit conditions have been exacerbated by foreign capital flight since the war. Data released by Russia’s central bank showed a drop in foreign currency reserves of just over $16.4bn in the week beginning August 8. This was one of the largest absolute weekly drops in 10 years, according to Ivan Tchakarov at Lehman Brothers....

While the value of the rouble has stayed relatively stable since the start of the conflict, with the help of central bank intervention, the stock market has fallen 6.5 per cent since August 7 and companies have found it harder to raise capital as investors demand sharply higher yields to buy their bonds to reflect the perceived risk....

But the ebbing of foreign investor confidence will make it harder for Russian companies to raise debt and equity finance since foreign sources account for a disproportionate share of long-term capital for Russian corporate borrowers....

Partly as a result of the Georgian conflict, yields on domestic rouble bonds have increased in the last month by between 75 and 150bp, Mr Bond said.

Title revised on August 22, 2008.