lmpact on Russian investors would consist in sharply increased costs of

issuance, even if eventually alternative financing sources in third markets

could be found.
Substitution would not be easy in the short term. Even if not cautht by
EU sanctions, third-country investors will likely be unwilling to participate
in new issuances by targeted entities or demand significantly higher
yields.
This would push
companies to seek State financing as a stop-gap,
further straining the govemment's
budgeL
Within the EU, direct negative impac6 would be limited (opportunity
cost of new investment and related services) and concentrated in
.jurisdictions
with high levels of financial intermediation or attractive
venues for issuance. The indirect impact wouldle distributed across the
EU as
potential
investors and holders of Russian securities are spread
out. Whilst the measure will cover only new issues of (selected)
Russian
securities, it may affect indirectly the securities previously
issued by
targeted entities, and already traded and held by EU investors. Adverse
effects could materialise in loss of revenue for operators,-Sepressed
value of existing securitles, loss of market
positions,
and as an unlikely
worst-case scenario risks of defauh on outstanding obligations from
targeted institutions. The Russian authorities, as maiority owners of the
targeted institutions, would have litde interest in seeing their finaflcial
institutions default on their obligations.
At an initial stage restrictions would not extend to sovereign bonds, as
Russia is a significant investor in issuance by several EU MS. Equity and
debt financing irom private
se6or operators
yould
also not be affected.
Syndicated loans would also not be covered in tIrc
piohibition, given
the
posslble
adverse effects of possible
asymmetsical retaliations on the EU
subsidiarles in Russia, but it is technically
possible
to add them in
subsequent rounds.
The efficiency of the measure strongly depends on coordinatbn with the
US. EU and US investors constitute the major portion
of market
participants
investing or assisting the investment in these financial
instruments and their venues are the major hubs for issuance.
Other
jurisdlctionsluch
as Switzerland, Singapore, Hong Kong or Tokyo
would only
provide
significant substitution capacity over time, but they
could not fully compensate for the loss of EU and US investors.
As a
possible
next step the restriction could be tied to other sanctions in
the
package, prohibiting
subscription of bonds and equities from
companies operating in the sectors subject to sanctions (e.9.
defence
companies as done by the US on 15 July).
,r-
4
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