Russia economy on the brink as bankruptcies explode and defence sector faces huge crisis

Putin is facing a wave of corporate bankruptcies (Image: Getty)

Russian companies are facing crippling debt burdens that could lead to a wave of mass corporate bankruptcies, experts have warned.

Industries across the board, including in the vitally important defence sector, are at risk of loan defaults due to record-high interest rates.

Over the past few years, many large companies sought to take advantage of low interest rates to snap up Western businesses that were forced to leave Russia due to sanctions.

Although Russian interest rates initially rose sharply to 20% following Putin's invasion of Ukraine and the imposition of sanctions, they eventually fell back down to 7.5%.

Under the expectation that these rates would continue to fall or stabilise at around 7%, companies rushed to take out loans as they embarked on a capital spending spree.

Sergey Chemezov has warned that most defence industries could go bust (Image: Getty)

Businesses snapped up local subsidiaries of Western companies, as they pulled out of the Russian market, as well as investing funds in import substitution schemes.

Company bosses increasingly took out loans with floating rates, tied to the Central Bank’s key rate.

Historically, these loans accounted for no more than 20 percent of total borrowing, but by mid-2023, that share had risen to 44 percent, driven by expectations of lower rates and reduced debt burdens.

However, recently the Central Bank raised its key interest rate to a historic high of 21 percent in an attempt to bring spiralling inflation under control.

Many companies are now facing serious problems in servicing their loans, increasing the risk of defaults.

Oleg Kuzmin, an economist at Renaissance Capital, warned highly leveraged companies are especially in danger, as they often rely on new loans to pay off old ones. However, with record high interest rates, that option is becoming unaffordable.

Corporate bankruptcies have already risen by over 20% in the first nine months of this year compared to 2023, and there are fears that it could soon rise much higher.

Already the Russian Union of Industrialists and Entrepreneurs has reported a sharp increase in complaints about late payments from business partners.

Previously, 22% of business owners faced this issue, but that figure has now jumped to 37% - an unprecedented surge.

Sergey Chemezov, the head of the state-owned conglomerate Rostec, warned that defence companies could soon go bust en masse, if interest rates remain high.

He said that advance order payments only covered 40% of production costs and the rest, 60%, had to be borrowed from banks.

"If we keep operating like this, most of our businesses will go bankrupt," Chemezov warned.

"Even arms sales don’t generate enough profit [to service debt at rates above 20%]."

Anton Gerashchenko, a former advisor to Ukraine's Interior Ministry, wrote on his X page: "It seems the Russian economy is headed towards a collapse in 2025. And Putin knows this."