Moody's lowers ceilings on non-sovereign ratings in Russia
Global Credit Research - 22 Dec 2014
Sovereign rating not affected
New York, December 22, 2014 -- Moody's Investors Service has today lowered Russia's foreign currency bond ceiling to Baa2 from A3; the foreign currency deposit ceiling to Ba1 from Baa2 and the short-term foreign currency deposit ceiling to Not Prime (NP) from P-2; and the local currency bond and deposit ceilings to Baa1 from A3. The short-term foreign currency bond ceiling remains P-2.
Today's decision does not constitute a rating action. It has no implications for the Russian sovereign's rating (Baa2, with a negative outlook).
RATINGS RATIONALE
Moody's country risk ceilings determine the maximum credit rating achievable for debt issuers domiciled in a particular country or for a securitisation whose cash flows are generated from domestic assets or residents. Foreign currency ceilings determine the highest rating possible for debt instruments denominated in foreign currency issued by domestic borrowers other than the national government. The foreign currency bond ceiling reflects the probability that a government would, in the event of a default, impose a moratorium on the foreign currency payments of domestic issuers. The foreign currency deposit ceiling reflects the risk that a government would restrict the repayment of foreign currency deposits.
Moody's decision to lower the foreign currency bond and deposit ceilings reflects the rating agency's view of the rising, though still very low, risk that domestic Russian entities will be unable to access foreign currency to service their foreign currency bond- and deposit-related obligations, given recent and prospective pressure on Russia's foreign currency reserves. Russia's reserves remain very substantial, but have fallen over the past year and Moody's expects this negative trajectory to continue in 2015.
The decision to place the foreign currency bond ceiling at the same level as the government bond rating reflects Moody's assessment of the very high likelihood that foreign exchange controls preventing non-sovereign issuers from servicing their foreign currency debt obligations would be imposed by the government in the event that it defaulted on its own debt. Moody's also notes that the risk of the government imposing moratorium restrictions even in the absence of its own default has risen, in the context of the significant currency depreciation and given its ability to control access to foreign exchange reserves. Therefore, the risk of domestic issuers not being able to service their foreign currency debt may be higher than indicated by the foreign currency bond ceiling and the risk of government default. Only the very strongest issuers which are very closely integrated with the government and which have ready access to foreign currency revenues could be rated at the level of the foreign currency bond ceiling.
The decision to lower the foreign currency deposit ceiling two notches below the government bond rating reflects Moody's view of the higher risk that the government may place formal or informal limits on the ready availability of foreign currency deposits than that it would default on its own debt.
The decision to lower the local currency bond and deposit ceilings in Russia to Baa1 reflects the rating agency's view that the coexistence of geopolitical tension and weakening economic growth outlook implies that the impact on all local currency obligations including structured finance instruments of any political, economic or financial dislocation accompanying a material deterioration in Russia's credit environment would likely be greater than previously assumed.
These decisions reflect a worsening in the operating environment facing all non-sovereign issuers in Russia, with deteriorating domestic conditions and pressures on external revenue flows. Concurrently, the government's willingness and ability to provide non-sovereign issuers with support may be diminishing. Moody's will assess the implications for non-sovereign ratings over the coming days.
Russia's sovereign rating is Baa2 with a negative outlook. Moody's downgrade of the sovereign rating to Baa2 in October, and the assignment of a negative outlook, was driven by Russia's increasingly subdued medium-term growth prospects, and by the ongoing erosion of the country's foreign-exchange buffers, in part because of low oil prices. We noted that the rating level balanced the sovereign's strong balance sheet, with low debt and a substantial foreign-exchange reserve cushion, against economic, fiscal and current account volatility related to commodity price swings and, more broadly, a weakening economic growth outlook.
We also noted that factors that could put pressure on Russia's sovereign rating included the further deterioration of the domestic growth outlook, particularly should lower growth further undermine fiscal and external accounts, and a material deterioration of the government's net worth through the erosion of its foreign currency reserves. Moody's is monitoring current market events closely and will update markets as appropriate to reflect any changes in the rating agency's medium term view of risk.
The principal methodology used in these ratings was Local Currency Country Risk Ceiling for Bonds and Other Local Currency Obligations published in March 2013. Please see the Credit Policy page on
www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Please see Moody's Rating Symbols and Definitions on the Rating Process page on
www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see Moody's Ratings Symbols and Definitions on the Rating Process page on
www.moodys.com for further information on the time horizon in which a credit rating action may be after a review or outlook action took place.
Please see the ratings tab on the issuer page on
www.moodys.com for the last action and the history of the rating. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website
www.moodys.com/disclosures for further information.
Please see the ratings disclosure page on
www.moodys.com/disclosures for disclosures on significant Moody's shareholders and on certain relationships between Moody's, its shareholders and/or rated issuers.
Please see
www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on
www.moodys.com for the most updated credit rating action information and rating history.
Kristin Lindow
Senior Vice President
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Alastair Wilson
MD-Global Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
