MOSCOW, July 16 (Reuters) - Prolonged high interest

rates in Russia may drive mergers and acquisitions of distressed

assets, a study by leading law firms showed, though Western-led

sanctions and a liquidity shortage among buyers are likely to

restrain growth in deals for now.

Russia's M&A market grew by just 2% in 2024 to $39.2

billion, the study showed, hampered by interest rates climbing

to their highest in more than 20 years at 21% and Moscow

tightening exit terms for Western companies selling their assets

in the wake of the conflict in Ukraine.

Increased investor uncertainty due to trade wars sparked by

U.S. President Donald Trump's tariffs has added to M&A market

pressure so far in 2025, according to the study, which collated

the views of around 20 Russian law and M&A advisory firms.

The study noted that 84% of 50 respondents expected a rise

this year in the number of deals involving businesses being

forced to sell to larger players capable of servicing their high

debt burdens.

The problems are most acutely felt in capital-intensive

industries like real estate, infrastructure and heavy industry,

the study said. That could include Western companies still

looking to dispose of Russian assets.

Russia's benchmark interest rate remains high at 20% after a

1% cut last month and government officials and business leaders

are exerting pressure on the central bank to reduce borrowing

costs more quickly.

Some companies are trying to sell certain projects to reduce

their credit load, said Anatoly Klinkov, director of investor

relations at A101.

"But here, the market is completely on the buyer's side,"

Klinkov said. "Money is very expensive."

With rates so high, buyers face less competition and have

increased leverage in negotiations.

Some industries, such as the coal sector, have noted rising

bankruptcies and entities being forced to close. Major exporters

have cut the planned volume of exports they send by rail, a

Russian Railways document showed in May, as Russia's economy

slows.

"In tight monetary policy conditions we will likely observe

growth in deals for problem assets and restructuring projects,"

said Pavel Terentyev of Advance Capital.