Fitch Says Russia Forces Choice Between Sanctions and Ratings

  • Big 3 must agree to ignore international sanctions under rules
  • S&P, Moody's are also reviewing future of Moscow operations

Fitch Ratings Ltd. said it will probably stop issuing local ratings on Russian companies under new rules that make it impossible to abide by European Union and U.S. sanctions against Moscow.

The rules create a dilemma for international firms because they run counter to the penalties imposed by their home countries over Ukraine, said Ian Linnell, global analytical head at Fitch. The firm, based in New York and London, has had a branch in Moscow for about 20 years.

“For us, as a global company with significant operations in the U.S. which are subject to U.S. legislation, this is very problematic and puts us in a situation whereby we would either be breaking Russian law or international law,” Linnell said by phone.

Under new guidelines, the big three ratings firms, Fitch, Moody’s Investors Service and Standard & Poor’s, can only issue local ratings through a Russia-regulated subsidiary that agrees ratings can’t be withdrawn under outside political pressure. When the U.S. and European Union imposed sanctions on Russia in 2014 after it annexed the Crimea peninsula, firms dropped some assessments. Branch offices will no longer be able to issue local ratings after the middle of next year.

Rather than set up a subsidiary regulated by Russia, Fitch is likely to maintain its Moscow branch where it will provide international ratings to companies looking to borrow abroad, Linnell said. The requirement to never withdraw opinions at the behest of a foreign government is the biggest stumbling block and could potentially violate international sanctions.

Ekaterina Pavlova, a spokeswoman for S&P, said the firm is currently studying the new regulation and is in contact with the central bank, including the question of a potential opening of a subsidiary. A Moody’s spokesman said the company is reviewing its operations in the country.

“We are yet to decide on our business structure in Russia long-term,” Fitch’s Linnell said. “Currently, the branch route is a strong possibility and we may choose not to provide national ratings though we would like to. It’s a difficult situation.”

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