S&P downgrades Russia to junk, Moody’s issues junk warning

Signage is seen outside Moody’s Corporation headquarters in Manhattan, New York, U.S., November 12, 2021. REUTERS/Andrew Kelly

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Feb 25 (Reuters) – Russia’s invasion of Ukraine sparked a wave of credit rating changes on Friday, with S&P downgrading Russia’s rating to ‘junk’ status, Moody’s indicting it for a downgrade to junk, and S&P and Fitch quickly cut Ukraine on default worries.

Financial markets in both countries were unsurprisingly shaken by the events of this week, which constitute the largest military attack in Europe since World War II, resulting in severe Western sanctions against Moscow. Read more

S&P downgraded Russia’s long-term foreign currency credit rating to ‘BB+’ from ‘BBB-‘, and warned it could downgrade further, after gaining more clarity on the macroeconomic repercussions of the sanctions .

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“In our view, the sanctions announced to date could have significant negative implications for the ability of the Russian banking sector to act as a financial intermediary for international trade,” S&P said.

It also reduced Ukraine’s rating from “B” to “B-”.

Russia now has an investment grade rating of Baa3 from Moody’s and a BBB- equivalent from Fitch, due to one of the lowest debt levels in the world at just 20% of GDP, and almost 650 billions of dollars in foreign exchange reserves.

A downgrade, however, would lower that rating to the riskier junk or sub-investment grade category.

“The decision to subject the ratings to review for downgrade reflects the negative credit implications for Russia’s credit profile of the additional and tougher sanctions imposed,” Moody’s said in a statement.

Sovereign rating reviews can take months, but this time they will likely be faster.

Moody’s said its decision would take into account the scale of the conflict and the severity of additional Western sanctions, which have already hit some of Russia’s biggest banks, military exports and members of President Vladimir Putin’s inner circle. Read more

He added that he would also assess the extent to which Russia’s large foreign exchange reserves are capable of mitigating the disruptions resulting from the new sanctions and the long conflict.

“Moody’s will seek to conclude the review when these credit implications become clearer, particularly as the impact of further sanctions emerges in the days or weeks ahead,” he said.

Moody’s also reviewed Ukraine’s already undesirable “B3” rating for downgrade.

Fitch didn’t wait, however, and immediately downgraded Ukraine’s rating three notches from “B” to “CCC”.

He explained: “There is a high likelihood of a long period of political instability, with regime change as President Putin’s likely objective, creating heightened political uncertainty and potentially also undermining Ukraine’s willingness to repay. his debt.”

Moody’s also warned that heavy conflict could leave Kyiv struggling to repay debt.

Scope, a small European rating agency, estimated that Ukraine’s public debt could exceed 90% of GDP by 2024, from around 50% currently, while S&P Global also warned on Friday of a series of downgrades to the aftermath of the war. Read more .

The International Monetary Fund is exploring all options to help Ukraine with additional financial support, its director, Kristalina Georgieva, said. Read more

Russia’s central bank has bolstered its banking sector with billions of additional currency and ruble liquidity, while the government has separately pledged large-scale support for sanctioned businesses.

This is not the first time that Russia has been reduced to nothing. Both Moody’s and S&P took similar action in early 2015 after the annexation of Crimea and falling oil prices triggered a ruble crisis.

There are “serious concerns” about Russia’s ability to manage the disruptive impact of the new sanctions on its economy, public finances and financial system, Moody’s said on Friday.

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Reporting by Marc Jones in London, Mehr Bedi and Bhargav Acharya in Bengaluru; Editing by Sam Holmes and Clarence Fernandez

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