10 Sep 2018 18:10

Russian business debt to suppliers increases despite improving economy

MOSCOW. Sept 10 (Interfax) - The tentative improvement in the economy has so far done little to improve the payment discipline of Russian business, which remains difficult and is showing signs of deterioration, according to official statistics and date from the SPARK-Payment-Monitoring system (http://plativsrok.ru).

Overdue debt owed by enterprises and organizations to their suppliers has increased in five of the first six months of 2018, according to data from Rosstat. The indebtedness to supplies increased 4.5% month-on-month in February, 4.1% in March, 9.1% in April, and 1.9% in June. The only exception to the trend was the 0.7% decline recorded in April.

SPARK-Payment Monitoring data paints a similar picture. The share of companies making on-time payments to suppliers declined by 5 percentage points to 69.2% in Q2 2018 quarter-on-quarter. The share of companies with payments overdue more than 60 days increased 5.3 percentage points to 10.5%.

The smaller the business, the worse the payment situation: the share of companies with payments overdue more than 60 days increase by 2.7 percentage points in the small business segment, 2 pps in the medium segment, and just 0.9 pps in the major segment.

Quarterly surveying conducted by the Russian Union of Industrialists and Entrepreneurs (RSPP) suggests that the growth in overdue payments is a pressing problem for business. Nonpayment by counteragents was cited by 44.2% of respondents to the survey ("State of the Russian economy and business activity") for April-July, putting it in first place in the period, up from second place (28.4% of respondents) in the previous survey. The consequence of rising indebtedness - shortage of working capital - was a business activity hindrance for 37.7% of the organizations surveyed, 5.3 pps more than in the previous survey in April.

The overall payment discipline situation is stable, the executive director of the Association of Factoring Companies, Dmitry Shevchenko said. At the same time, the risks of a slowdown in settlements in the b2b sector in H2 2018 remains, and the number of companies that may be granted deferments of 60 days and more is declining, he said.

Among economic sectors, the on-time payment rate declined for companies in wholesale and retail trade, food service, construction and food product production, according to SPARK-Payment Monitoring data. Shevchenko said he expects sectors in which individuals are the end consumers - household goods, food, housing services, e-commerce - will be in a more advantageous situation in future. In the corporate sector, suppliers will focus on segments with stable cash flows, such as state contracts and contracts with state companies, those dependent on supplies from them and other associated companies.

In the construction sector, the nonpayment problem remains unsolved, said Nikolai Alekseenko, the general director of Rating Agency of Building Complex. Companies in the sector continue to go bankrupt at rates in excess of those seen in the pre-crisis year of 2014, although the number of new bankruptcies declined to 1,056 in H1 2018 from 1,287 in H1 2017. The share of overdue debt owed by construction companies in overall bank debt did decline to 18.7% from 19.1% previously, Alekseenko said, while noting that in the pre-crisis period, the percentage did not exceed 9%.

Construction work accounts for up to 50% of the volume of all state contracts, so the sector is sensitive to payment discipline on state orders. If an ordering party makes use of all available legal means to defer payment on contracts, it gives rise to a chain of non-payments among contractors. Amendments to the law on state purchases (N44-FZ) requiring payment for work performed in a 30-day period have not produced the desired result for the construction companies, which hinders improvement of the payment situation in the industry, he said.

The electricity sector has also benefited little from the sluggish economic growth: although there is improvement in individual territories and among individual groups of consumers, the improvement is not systemic in nature, the CEO of the Nadezhny Partner Association Andrei Romanchuk said.

Payments for electricity on the retail market remain high, averaging 98.8% across Russia, although that figure is 0.4 pps lower than in the same period last year.

The budget sector is the most disciplined payer, while non-industrial consumers, including housing enterprises and households, which account for over half of total debt, are the least disciplined. The situation with mutual settlements among retail and grid companies has improved.

On the wholesale electricity and capacity market, indebtedness has increased by nearly 9 billion rubles since the beginning of the year and accumulated debt on the wholesale market has reached 75.9 billion rubles, Romanchuk said. Although the debt is distributed extremely unevenly - the North Caucasus Federal District traditionally accounting for two-thirds of the total - the systemic problem for non-payers is identical in practically all regions of the country, and the preconditions for visible improvement of the situation before the end of the year are absent, he said.

Nonetheless, the indicators for the current year remain better than last year's. The nonpayment rate was 6.0%-6.5% in H1 2018, down from 7.2%-7.3% in H1 2017, according to Rosstat data. SPARK-Payment Monitoring data shows a similar trend: the share of companies with payments overdue more than 60 days (based on analysis of comparable samples) declined 3.7 pps in Q2 2018 year-on-year.