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Standard and Poor’s downgrades Russia’s sovereign debt rating to BBB-, outlook negative

April 25, 2014, 20:34 UTC+3 MOSCOW
This is the lowest grade in the category, which investors assess in terms of ‘creditworthiness’
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MOSCOW, April 25. /ITAR-TASS/. Standard and Poor’s international ratings agency has downgraded Russia sovereign debt rating to BBB- from BBB with a negative outlook.

This is the lowest grade in the category, which investors assess in terms of ‘creditworthiness’. The next level, BB+, falls into the category of ‘speculative’.

London stock exchange where the yield of Russian Eurobonds maturing in 2030 has grown to a maximum since May 2011 was the first one to react to the news. Experts were predicting an intensification of selling of the papers after the opening of stock markets in the US, as the reaction to the S&P’s decision to downgrade the rating would become more expressed then.

Russia’s rating has been cut for the first time since 2008. It predetermines the likelihood of a growing cost of borrowings for the Russian corporate sector.

Quite possibly, the downgrade of the sovereign ratings will be followed by a downward revision of corporate sector rating and the latter will affect Russian state corporations.

“The tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy and hence further undermine already weakening growth prospects,” S&P said in the statement.

In the meantime, Russian Economics Minister Alexei Ulyukayev does not agree with the S&P analysts. He believes that the decision to revise Russia’s rating was politically motivated in some measure but it will unlikely affect the investors’ choices.

“I think this decision was grounded in investment expectations but I don’t predict any major shifts,” he said. “We can’t wield any impact on the politically motivated component but we’re wielding impact on the economic one.”

Nor does the Finance Ministry expect an increase of capital flight from the country. “These risks have been foreseen in many ways,” Maxim Oreshkin, the chief of the department for long-term planning said.

Thus the unrevised forecast of the Finance Ministry puts the outflow of capital at $70 billion to $80 billion, while the basic forecast of the Economics Ministry contains the figure of $100 billion.

Alexander Morozov, the chief economist of HSBC bank for the CIS, said the S&P motion on Russia’s sovereign rating was premature and quite unexpected at much the same time.

“I don’t think the investors factored this downgrade into their strategies but still it remains at the level of creditworthiness and so nothing should be changed yet if you look at it from the standpoint of an investor,” he said.

Morozov believes that a re-evaluation of risks of investing in the Russian securities will take place eventually and fair interest rates will be established eventually.

Vladimir Osakovsky, chief economist at Merrill Lynch for Russia believes that the S&P decision is already factored into the prices of assets following the past few weeks of amassed sales.

“I don’t expect any serious problems until the downgrade to the speculative level takes place,” Osakovsky said.

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