Moody's to Stop Local Russian Credit Ratings Amid Legal ChangesElena Popina and Nikolaj Gammeltoft
Russian debt ratings for international markets will continue
Fitch has also said it will probably cease local ratings
Moody’s Investors Service said it will stop issuing local ratings on Russian companies and close a credit grading joint venture with Interfax before new rules make it impossible for the U.S.-based firm to abide by international sanctions against Moscow.
Under a new Russian law taking effect in 2017, Moody’s, Standard & Poor’s and Fitch Ratings can only issue local ratings through a Russia-regulated subsidiary that agrees ratings can’t be withdrawn under outside political pressure.
“This decision was taken in light of legislative changes and other potential restrictions applicable to the business of providing” national scale ratings in Russia, Moody’s said in a statement Wednesday.
The company will shut down Moody’s Interfax Rating Agency as a consequence, it said in the statement, citing “requirements regarding structural and operational independence which would limit MIRA’s ability to make use of Moody’s global resources.” Moody’s “remains committed to retaining its strong local presence in Russia” and will continue to provide global scale ratings to customers there and in other countries in the region, according to the statement.
Fitch last month said it will probably stop issuing local ratings on Russian companies under new rules that make it very difficult to comply with European Union and U.S. sanctions against the country. Moody’s Interfax posted 87 million rubles of revenue in 2014 (about $2 million based on the exchange rate at the time), according to SPARK, a Russian service for analysis of markets and companies. Moody’s revenue totaled $3.3 billion in 2014, the company’s filings show.
“This is a representation of political risk that international firms have had to deal with as they got caught up between Russian legislation and international legislation,” Kirill Yankovskiy, the director of equity sales at Otkritie Capital International, said by phone from London. “For firms like Moody’s for which Russia is not the only market, the logical decision is to leave. This doesn’t send any immediate bearish signal in the market, but it is yet another brick in the wall between Russia and the West.”
Tension over Russia’s credit ratings came to a head in 2015, when S&P and Moody’s downgraded the country below investment grade following a slump in oil prices and sanctions imposed over Ukraine. The Bank of Russia in June said it will create its own rating company to withstand “geopolitical risks.” The agency, run by Ekaterina Trofimova, AO Gazprombank’s first vice president and a former banking analyst for Russia and former Soviet states at Standard & Poor’s in Paris, will start issuing ratings as soon as the second quarter of this year.
Russian officials have been voicing criticism over the rankings given to Russia, which President Vladimir Putin in 2011 called “an outrage” that increased borrowing costs for both domestic companies and the government.