Moody’s downgrades Russia’s credit ratings to pre-default
On Sunday, international rating agency Moody’s Investors Service has lowered Russia’s credit rating to Ca, the second-lowest grade of its ratings ladder. The decision was “driven by severe concerns around Russia’s willingness and ability to pay its debt obligations.”
According to the agency, capital controls earlier introduced by Russia’s central bank are expected to restrict payments on the country’s foreign debt and may lead to default.
Last week, the Bank of Russia temporarily halted payments and said it had barred coupon payments for foreign investors holding OFZs, rouble-denominated sovereign debt.
On Saturday, Russian President Vladimir Putin approved a new regulation allowing Russia and Russian companies to pay foreign creditors in rubles, the measure establishes temporary rules for sovereign and corporate debtors to provide payments to creditors from “countries that engage in hostile activities” against Russia, its companies, and citizens.
On Sunday, the Central Bank said that creditors from Russia and states that have not joined the sanctions will be able to receive debt payments in rubles or in foreign currency after getting a special permit by the regulator.
On March 16 Russia is to pay $107 million in coupons across two Eurobonds. Moody’s warned of increasing risks, saying that foreign bondholders were likely to recoup only part of their investment.
“The likely recovery for investors will be in line with the historical average, commensurate with a Ca rating,” it said.
“At the Ca rating level, the recovery expectations are at 35 to 65% (of face value).”
Moody’s along with two other credit rating majors Fitch and S&P Global had previously scored Russia at investment-grade levels of Baa3/BBB. Since then, all three have lowered their scores by several notches, putting Russia’s credit firmly in the “junk,” or non-investment grade status. S&P rates Russia at “CCC-minus” while Fitch has it on B, with a negative outlook, meaning a further downgrade is likely.
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