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Debt Service: Evidence Based on Consolidated Statements of Russian Companies

Author

Listed:
  • Anna Burova

    (Bank of Russia, Russian Federation)

  • Denis Koshelev

    (Bank of Russia, Russian Federation)

  • Natalia Makhankova

    (Bank of Russia, Russian Federation)

Abstract

This paper features a modification of the debt service ratio by expanding the debt service concept and breaking down debt service and debt by currency, and using consolidated data. Our debt service analysis also takes into account the company’s ability to meet its current liabilities with cash and funds borrowed under credit lines. Our sectoral analysis of Russian companies highlights sectors of particular concern. The machinery and electronic components sector has a large share of non-profitable companies with a small amount of cash, on the one hand, and profitable companies’ DSRs are higher on average than in other sectors, on the other hand. Oil and gas companies and firms in metals, mining and chemicals and agriculture largely have a big difference between the share of rouble debt service and the share of revenue originating from Russia and CIS countries, which indicates exposure to currency risks (although companies hedge their foreign currency risks with cross-currency and interest rate swaps). Credit lines may be a source of funds to meet current liabilities, but actually, they only allow postponing payments building up debt service for future periods. Using simulation of a 25% revenue shock, we demonstrate a significant increase in the debt service ratio, especially in such sectors as machinery, construction and real estate, and energy. The use of credit lines concurrently with the emergence of this shock brings financial stability risks for the broader economy.

Suggested Citation

  • Anna Burova & Denis Koshelev & Natalia Makhankova, 2022. "Debt Service: Evidence Based on Consolidated Statements of Russian Companies," Bank of Russia Working Paper Series wps103, Bank of Russia.
  • Handle: RePEc:bkr:wpaper:wps103
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    References listed on IDEAS

    as
    1. Alessi, Lucia & Detken, Carsten, 2018. "Identifying excessive credit growth and leverage," Journal of Financial Stability, Elsevier, vol. 35(C), pages 215-225.
    2. Drehmann, Mathias & Juselius, Mikael, 2014. "Evaluating early warning indicators of banking crises: Satisfying policy requirements," International Journal of Forecasting, Elsevier, vol. 30(3), pages 759-780.
    3. Mathias Drehmann & Mikael Juselius, 2012. "Do debt service costs affect macroeconomic and financial stability?," BIS Quarterly Review, Bank for International Settlements, September.
    4. Anna Burova & Konstantin Egorov & Dmitry Mukhin, 2022. "Foreign Currency Debt and Exchange Rate Pass-Through," Bank of Russia Working Paper Series wps93, Bank of Russia.
    5. Bruno Tissot, 2016. "Globalisation and financial stability risks: is the residency-based approach of the national accounts old-fashioned?," BIS Working Papers 587, Bank for International Settlements.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    debt service; debt service ratio; sectoral analysis; revenue shock;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L70 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - General
    • L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General

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