Russian companies" struggle to finance themselves will persist The beleaguered Russian rouble has started stabilising in recent days as the central bank moves towards a free float. But attention is shifting to an underlying reason for the rouble weakness: Russian companies are struggling to finance themselves - thanks, in large part, to western sanctions imposed over Moscow's intervention in Ukraine. While Russian sovereign debt is low, at a mere 13 per cent of economic output, corporate external borrowing ballooned from $100bn a decade ago to peak at almost $660bn in July. A significant portion of the loans are relatively short-term, and need constant refinancing. EU and US sanctions, blocking access to western funding for more than 30 days, have targeted only a handful of the largest Russian banks and oil companies such as Rosneft and Sberbank. But what is now becoming clearly pernicious is the "self sanctions" phenomenon which has been observed since the early days of the Ukraine crisis. Western banks and financial institutions are refusing to finance even those Russian companies that face no sanctions at all, to insulate themselves from any potential risk. Moscow had hoped Chinese banks would come to the rescue. But as Vladimir Yakunin, the Russian Railways chief and an associate of president Vladimir Putin, has told the Financial Times, Asia cannot replace western financing. Vladimir Milov, an opposition-minded economist and former deputy energy minister, warns that China's banking sector is not set up to provide large lending to foreign borrowers, but rather to fund China's economy and exports. It lacks the risk management skills needed to serve Russian entities. Sberbank analysts have calculated that Russian companies need to refinance $29bn of debt in the fourth quarter of this year, and $106bn next year. Companies under western sanctions account for about 60 per cent of the total due to be repaid by the end of 2015. Russian companies rushing to pay off debts falling due this year created a squeeze on dollar liquidity and was one of the reasons behind the rouble's slide. Oleg Kouzmin, economist at Renaissance Capital in Moscow, notes that the weaker rouble has contributed to a partly technical drop in corporate external debt in the third quarter to $614bn. Just under a quarter of the debt is rouble-denominated. But the bulk is dollar-denominated, and the price of dollars has increased sharply, so "entities that now need to pay off external debt but do not have stable export revenues might be put in a fairly challenging environment," he says. Western banks are even refusing to finance companies that face no sanctions The best-placed businesses, adds Mr Kouzmin, are banks that have accumulated large foreign assets; companies with export revenues; and big businesses that can either get government support or still find ways to access the market. Other types of companies with external debt - particularly medium-sized businesses without the clout to secure state help - "really might suffer," he says. There are also limits on how much Russia can use its reserves to help companies struggling to refinance debts and fund future investments. As Mr Milov notes, stripping out gold, and reserve positions in the International Monetary Fund, foreign exchange reserves are less than $400bn, down $70bn this year. The $82bn National Welfare Fund, which forms part of the reserves but was originally designed to finance state pensions, is likely to be tapped to help companies hit by sanctions - but requests for help already exceed its entire value. Rosneft alone, struggling under the debt pile it took on to acquire the former TNK-BP, has sought $48bn. Russia's finance ministry is hesitating over Rosneft's request, aware that doing so could open the floodgates to other companies. But, says Mr Milov, "a technical default of one of the biggest Russian borrowers would do a lot of damage" to the country's investment standing. So officials ultimately have little choice. The best-placed businesses are banks with large amounts of foreign assets Using reserves to buy Russian corporate bonds so that the issuers can pay off external debts, however, means the wealth fund is in effect being transferred abroad rather than being used to fund investments in the domestic economy as originally planned. Investors, corporate bosses and analysts agree the only way to turn the situation around is for Russia to stop pressuring its neighbour and to begin to get sanctions lifted. But with Nato warning on Wednesday of new Russian armour rolling into east Ukraine - despite denials from Moscow - that seems a distant prospect.