Log In

Russia Gets First S&P Upgrade In Over Decade To Exit Junk Status

Bloomberg: Russia won its first upgrade from S&P Global Ratings since 2006, a milestone decision that returns the world’s biggest energy exporter to investment grade after three years at junk.

The sovereign rating was lifted to BBB- from BB+, with a stable outlook, S&P said in a statement on Friday. That puts it on par with Kazakhstan, Bulgaria and Indonesia. Fitch Ratings, which already has an investment-grade score for Russia, on Friday affirmed the rating at BBB- with a stable outlook.
“The upgrade reflects the track record of prudent policy response that has allowed the Russian economy to adjust to lower commodity prices and international sanctions,” S&P said in the statement.

With the decision, Russia now boasts a non-speculative ranking from two rating companies, potentially triggering inflows of more than $2 billion from funds that track the main emerging-market Eurobond benchmark indexes, according to Societe Generale SA. Moody’s Investors Service, which has Russia one notch below investment grade, set it on course for a possible exit from junk in the next 12 to 18 months by improving its outlook to positive last month.
Russia’s spell in junk at S&P and Moody’s started in 2015, as a slump in crude and international sanctions drove it toward recession. Oil prices are now recovering, fragile economic growth is back and more U.S. sanctions are off the table for the immediate future. While investors predicted it was only a matter of time before Russia won an upgrade, few anticipated the move would come as early as it did.

In its statement on Friday, S&P said its decision was based on Russia’s economic policy and its commitment to fiscal restraint, which reduced medium-term risks of fiscal slippage. It also highlighted the credit to private sector recover.

The nation’s $2.5 billion of June 2028 dollar bonds were steady today, a public holiday in Russia, yielding to 4.32 percent. Five-year credit-default swaps were little changed at about 109 basis points after Friday’s move, the same level as before the 2008 collapse of Lehman Brothers Holdings Inc.

While yields have climbed almost half a percentage point since the start of 2018 amid a global selloff, the premium investors demand to hold Russia’s 2023 Eurobonds instead of U.S. Treasuries has almost halved in the past year as oil recovered and investors hunted for higher returns in emerging markets. Russia has one of the lowest debt levels in emerging markets.

The U.S. Treasury added to investor optimism before the S&P announcement when, at the end of January, it published a milder-than-anticipated report on Russia and officials who could be subject to sanctions. It followed a few days later with a second review that said the impact of restricting Russian sovereign-debt sales could rattle foreign markets.

Russia’s Finance Ministry is pushing ahead with plans to sell Eurobonds this year, naming VTB Capital on Thursday to organize a possible placement.

Tagged under

Leave a Reply