Debt Service: Evidence Based on Consolidated Statements of Russian Companies

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.