Country risk premium rises sharply in Belarus – OfficeLife
New York University Professor Asvat Damodaryan
published updated country risk premium calculations. It follows from the data that Belarus (as well as Russia and Ukraine) leads the list of countries in which the country risk premium has grown more than others over the past six months – from 7 to 17% (and the total risk premium – from 11 to 23%) .
This means that the approximate return target for an international investor in Belarus in dollars is 26%: 3% (risk-free rate) + 6% (equity risk premium) + 17% (country risk premium). A similar rate of return six months ago is only about 12%.
What are the practical implications of rising country risks for Belarus?
According to financial analyst at Duff & Phelps Maxim Adaskevich, country risk figures are used by investors around the world when calculating the conditions for buying and selling shares. Therefore, a significant increase in the required return due to the country risk of high asset values in the country (because if an investor requires a higher return, he will be willing to pay less for an asset).
At the same time, in the case of Belarus, the impact of estimated country risk is very limited, since the republic is already cut off from the international market. Secondly, restrictions on the maximum sale of Belarusian business to investors from “unfriendly” countries. Thirdly, for the local and Russian population, alternative investment opportunities are severely limited.
The main reason for the increase in country risk is the downgrading of the credit rating due to the default, which is still of a purely technical nature.
Despite this, it cannot be said that there will be no consequences at all. Deals with Belarusian assets will still get a place, but investors even from “friendly” countries (especially those that are not under sanctions – China, Turkey, Serbia and others) are ready to pay even less for Belarusian assets than before: the alternative is more than enough . Because in practice they are also very often guided by the same calculations as investors from “unfriendly” countries,” comments Adaskevich.