Russian President Vladimir Putin. Photo: Reuters.
Credit rating agency Fitch on Tuesday downgraded Russia’s sovereign rating six notches further into “junk bond” territory, placing it in category “C” from “B,” adding in a report that “a default is imminent” on the payment of its financial obligations, since the sanctions and trade restrictions applied to the country have undermined its willingness to pay the debt, as reported by Reuters.
Russia’s financial markets have been hit by economic sanctions imposed by Western countries after it invaded Ukraine on February 24, raising major concerns about its ability and willingness to repay debt.
The rating firm highlighted the presidential decree that could force a redenomination of foreign currency sovereign debt payments to local currency for creditors in specific countries.
“Further escalation of sanctions and proposals that could limit energy trading increase the likelihood of a political response from Russia that includes at least selective default on its sovereign debt obligations,” the ratings agency said in a statement. to the possibility of Russia falling into default.
On March 16, Russia must pay $107 million in coupons through two bonds, although it has a 30-day grace period to make the payments and settle its obligation.
The ‘C’ rating on Fitch’s assessment is just one step above default, bringing it in line with Moody’s current equivalent rating of ‘Ca’. The change comes less than a week after Fitch revoked Russia’s investment-grade status, cutting its rating to “B” from “BBB.” Peers Moody’s and S&P had also lowered their sovereign ratings.
“The further increase in sanctions and proposals that could limit energy trading increase the likelihood of a political response from Russia that includes at least the selective default of its sovereign debt obligations” (Fitch)
It should be remembered that the MSCI company announced last week that the MSCI Russia index was downgraded from “Emerging Markets” to “Isolated Market”, as reported by the company on its website. The company reported that “the decision will be implemented in a single step on all MSCI indices, including standard, custom and derivative indices, at effectively zero price and at the close of March 9, 2022″.
On February 28, 2022, MSCI launched a consultation with international institutional investors on the accessibility and investment possibilities of the Russian stock market. During the consultation, MSCI received responses from a wide range of global market participants, including asset owners, asset managers and broker-dealers.
MSCI detailed that “an overwhelming majority confirmed that Russian equities are currently not investable and that Russian securities should be removed from the MSCI Emerging Markets Indices”. Consultation participants highlighted several recent negative developments that have led to a deterioration in the accessibility of the Russian stock market to international institutional investors, to such an extent that it does not meet the requirements of Market Accessibility for Emerging Markets.”
Likewise, it indicated that it will continue to monitor market developments and may issue additional guidance or announce additional changes relevant to specific indices, if necessary.
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