Belarus Creditors Rush to the Exit as Sanctions Hit Russian Ally

(Bloomberg) — Belarus bond investors are rushing to the exit as the nation gets hit with more sanctions for its involvement in the Ukraine conflict.

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Holders of the country’s dollar-denominated notes are struggling to find buyers as liquidity dried up after the U.S. and its allies imposed new restrictions on the country in the past days. Indicative prices show investors value Belarus bonds due 2027 at around 34 cents on the dollar, though there has been no trade at that level. The last time the debt was negotiated was on Tuesday, at 84 cents, according to Bloomberg data.

Investors have been ditching Belarus bonds since mid-February as tensions around Ukraine escalated. Even before the last round of sanctions, the nation’s dollar debt was already the world’s worst after Russia, handing investors a 78% loss this year, according to Bloomberg indexes.

“The fortunes of Belarus are now tied to Russia’s,” said Guido Chamorro, co-head of emerging-market hard currency debt at Pictet Asset Management Limited in London. “It is also at risk of becoming isolated economically, and potential sanctions are making bond trading liquidity very difficult.”

Belarus has been hit with sanctions for its involvement in the Ukraine conflict. While the nation’s leader Alexander Lukashenko has denied Russia asked Minsk to join the conflict, President Vladimir Putin has forced a much closer union with the embattled leader. Also some of the shelling on Ukraine has come from Belarus, according to Ukraine’s border guard.

The U.S. announced on Wednesday harsh restrictions to “choke off” Belarus’s imports of technology goods to carry out the war, while the European Union banned some imports from the country. Also Japan announced export controls and other limitations on the nation, and the U.K. imposed sanctions on Belarussian officials and military enterprises earlier this week.

The extra yield investors demand to hold Belarus sovereign bonds over U.S. Treasuries skyrocketed to over 9,000 basis points, according to JPMorgan Chase & Co. data, well above the 1,000 basis point threshold for debt to be considered in distress. The nation is rated five levels below investment grade by Fitch Ratings and S&P Global Ratings and six notches into junk by Moody’s Investors Service, all with a negative outlook.

The U.S. had already imposed sanctions on Belarus last year, citing “deplorable behavior” by President Lukashenko’s regime. In December, the North American nation forbade its residents to participate in most new debt issuance by the Eastern European nation, restricting its access to international capital markets. Last month, the U.S. sanctioned entities and individuals focused on Belarus defense sector and financial institutions.