Mass bankruptcies threaten Russian construction sector
Aleksey Krapivin, whose firm oversaw the construction of the Crimean Bridge as well as key motorway projects, pointed to high interest rates and a drop in orders as key drivers of the oncoming challenges.
Three years ago the Bank of Russia raised its key rate from 9.5% to a high of 21% to stabilize the ruble and contain inflation in response to Western sanctions.
Last month, the regulator cut its key interest rate by 100 basis points to 20%, citing a slowdown in inflation, the first rate reduction since 2022.
About half of the companies in Russia's civil construction sector are nearing insolvency, Krapivin told RBK in an interview published on Monday. National Projectstroy, he said, is already under pressure from borrowing costs and had tightened financial discipline and delayed investment plans.
Infrastructure projects are particularly exposed due to their high capital intensity and long execution timelines, Krapivin claimed, adding that new developments are not viable. 'Building today is always cheaper than building tomorrow,' he said.
Smaller firms in the sector are especially vulnerable due to risky investments in non-core activities or allocating profits from future projects in advance while virtually all construction companies are feeling the burden of 'expensive money.'
Krapivin acknowledged that the government and private sector are exploring ways to mitigate the impact of high rates, including expanded use of public-private partnerships, and expressed confidence that the situation would gradually improve.
Bank of Russia Deputy Governor Aleksey Zabotkin has also claimed that key rates could be cut by over 100 basis points at the bank's upcoming July 25 meeting, adding the move depends on inflation trending toward the 4% target by 2026.
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