Russia’s government finally got the grade it thinks it deserves. And it’s an A-.
Russia, which has long complained of bias by the three U.S. rating services that dominate the industry, won the mark from Moscow-based Expert RA. The company today published the first sovereign debt ratings issued out of Russia.
“It’s already abundantly clear that the work of all three American agencies is directed toward inflating the U.S. rating and lowering ratings for emerging economies,” Sergei Glazyev, an economic adviser to President Vladimir Putin, said at a presentation in the Russian capital today.
Putin in 2011 said the rankings given to Russia were an “outrage” that increased borrowing costs for both domestic companies and the government. The country has “more than earned” an upgrade to within a step of A, Deputy Finance Minister Sergei Storchak said in an interview in June.
Russia, which relies in part on U.S.-based ratings to invest its $522 billion in foreign-currency and gold reserves, should stop using credit grades issued by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, Glazyev said.
The world’s largest energy exporter last had its debt score changed by one of the three U.S. companies in February 2009, when Fitch cut it one level to BBB, three steps below A and two above junk. That came three months after S&P took the same action. Moody’s has held Russia at Baa1, the third-lowest investment grade, since July 2008.
S&P and Moody’s have said Russia’s high reliance on oil revenue, which makes the budget vulnerable to swings in commodity prices, outweighs the low level of sovereign debt. Russia plans to follow last year’s sale of $7 billion in Eurobonds with another offering of the same amount in 2013.
Rating companies are also facing greater scrutiny in developed economies, which accuse them of misleading investors and helping ignite the worst financial crisis since the Great Depression. The U.S. government last month filed a lawsuit seeking as much as $5 billion from S&P, accusing it of inflating grades on mortgage-backed securities to win business. An Australian court this month ordered S&P and two other companies to pay about A$20 million ($20.7 million) to Australian towns for losses on top-rated securities.
Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of 32 upgrades, downgrades and changes in credit outlook last year, according to data compiled by Bloomberg published in December. That’s worse than the longer-term average of 47 percent, based on more than 300 changes since 1974. Investors ignored 56 percent of Moody’s rating and outlook changes and 50 percent of those by Standard & Poor’s.
When judged on the basis of budget deficits, debt levels and the stability of revenue, though, Russia should have a higher rating than the U.S., said Glazyev, a member of the Russian Academy of Sciences and a former lawmaker.
Expert RA gave Germany, the U.K., the Netherlands and Luxembourg its highest mark, AAA. The U.S., Canada and Austria are rated one level lower, at AA+, followed by France at AA and China at AA-. Kazakhstan, rated above Russia by S&P and Fitch at BBB+, earned a BBB grade.
Grigori Marchenko, chairman of Kazakhstan’s central bank, said in December he’d boycott ratings companies until the country wins an A rating.
Glazyev said he backed Expert RA’s approach, which looks to separate sovereign risk from the overall credit risk of doing business in a country.
“Our analysts and experts are no worse than foreigners in understanding the nature of risks in our economy,” Glazyev said. “That’s proved in how the foreign ratings agencies work. They lure away Russian experts. They’re using our brains.”