Russia Credit Rating Slashed to Junk by S&P and Fitch, Moody’s Issues Junk Warning

Credit rating slashed Russia’s credit rating Friday. S&P and Fitch lowering Russia’s rating to ‘junk’ status, Moody’s said it is putting it on review for a downgrade to junk. At the same time S&P and Fitch swiftly cut Ukraine on default worries. The International Monetary Fund is exploring all options to aid Ukraine with further financial support, said its head, Kristalina Georgieva.

The Russian declaration of war on Ukraine has ravaged both countries finances and people with severe consequences for both countries the result of Russian President’s Putin’s actions. European rating agency Scope estimated Ukrainian government debt could jump above 90% of GDP by 2024 from about 50% now as a result of the war.

S&P Ratings

S&P lowered Russia’s long-term foreign currency credit rating to ‘BB+’ from ‘BBB-‘. The agency warned it could lower ratings further, after getting more clarity on the macroeconomic repercussions of the sanctions.

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

S&P also cut Ukraine’s rating to ‘B-‘ from ‘B’.

Moody’s Ratings

Moody’s has placed Russia’s ratings on review. Moody’s currently has Russia on an “investment grade” rating of Baa3 due to one of the lowest debt levels in the world at just 20% of GDP, and nearly $650 billion of currency reserves.

“The decision to place the ratings on review for downgrade reflects the negative credit implications for Russia’s credit profile from the additional and more severe sanctions being imposed,” Moody’s said in a statement.

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

Moody’s said its decision would factor in the scale of the conflict and the severity of additional Western sanctions, which have already hit some of Russia’s top banks, military exports and members of President Vladimir Putin’s inner circle.  The degree to which Russia’s substantial currency reserves are able to mitigate the disruption stemming from the new sanctions and lengthy conflict will be part of the equation.

“Moody’s will look to conclude the review when these credit implications become more clear, particularly when the impact of further sanctions takes shape in the coming days or weeks,” it said.

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

Moody’s also put Ukraine’s already-junk “B3” rating on review for a downgrade.

Fitch Ratings

Fitch has Russia at BBB- and moved quickly to downgrade Ukraine. Fitch cut its Ukraine rating by three notches to “CCC” from “B”.

“There is a high likelihood of an extended period of political instability, with regime change a likely objective of President Putin, creating heightened policy uncertainty and potentially also undermining the willingness of Ukraine to repay debt.”‘

Fitch said on Ukraine

Russia has been shoring up its finances with Russia’s central bank been adding billions to its banking sector with billions in additional foreign exchange and Rouble liquidity. Putin’s government has pledged full-scale support to sanctions-hit companies.

Russia was cut to junk by Moody’s and S&P in early 2015 after the annexation of Crimea and the plunging oil prices caused a Rouble currency crisis.

Source: S&P, Moody’s, Fitch

From The TradersCommunity US Research Desk