Last week, Fitch downgraded the sovereign ratings of Russia on borrowings in foreign and local currency ratings from BBB to BBB-. This is the last step of investment grade. Similar rating Russia already has the scale S & amp; P: in late October the agency has affirmed Russia’s sovereign rating at BBB-. Lenders are always based on the lower of the ratings assigned by three agencies, explains chief economist BCS Vladimir Tikhomirov, Fitch action rather belated and unlikely to have a direct impact on issuers.
But the worst is probably ahead. Both agencies give Russia a negative outlook rating and S & amp; P announced in late December that raised Russia’s sovereign rating on review for possible downgrade, and the decision on the revision can be made by the end of January. Minus one degree of foreign currency rating signifies the transition of Russian securities in the « garbage” category.
With decreasing Russia’s rating to « junk” banks and investment funds, are not entitled to hold the portfolio of securities with such a rating will be forced to start their sale.
itself « garbage” rating immediately after the Russian borrowers will not hit, according to Tikhomirov, but only because the economic situation and so too bad. Credit markets have been closed due to sanctions even in cases where there is no explicit prohibition, lenders do not want to take on additional risks associated with the strengthening of the sanctions regime.
Russian companies and banks involved in foreign markets, experience difficulties in refinancing, and the cost of servicing foreign currency debt soared due to the weakening of the ruble.
Because of the threat of almost complete closure of international capital markets, reduction of the external debt burden of non-governmental borrowers reached a record for the post-crisis rates, ascertained by Fitch notice of the Russian rating.
The state in this case, can help: already discussed redemption of corporate bonds in the event of a downgrade to « garbage, “said Economic Development Minister Alexei Ulyukayev ( cm. incision).
sources that could be kept in mind Ulyukayev, quite a bit, says Tikhomirov. Budget revenues are reduced, it is necessary to use a reserve fund to cover the deficit, and sovereign wealth fund and so oversubscribed ?? funds are needed for additional capitalization of banks and infrastructure projects.
According to Fitch, in the state reserve fund about 12% of the projected GDP for 2015, compared to 16% of GDP in the crisis year of 2008, and now the risks are high: the longer keep sanctions, the greater the likelihood of shifting non-state external debt on the balance of the state.
The government is likely to spend money very carefully, for fear that they would be required in the case of an even more serious deterioration in the financial and economic situation, said Tikhomirov . Redemption of corporate bonds, from this point of view will be counter-productive application of resources, he continues: recall attempt to support the stock market by buying securities in the autumn of 2008, but then the idea, fortunately, quickly abandoned.
The main threat, if the rating fell to « junk”, there will be a recapitalization of banks, which is planned to be done by federal bonds ( OFZ), wrote chairwoman of the Center for Macroeconomic Analysis Alfa Bank Natalia Orlova. In addition, she continues, covenants might work ?? part of the loan was made under the condition of preserving the investment rating: « We are now, and so in a situation where because of higher rates of credit quality deteriorated, banks losses on the bond portfolio: reduction of the sovereign rating ?? additional force majeure, which will give the deterioration of the financial position of banks additional impetus ».
The main damage from the Russian translation in « garbage “category will suffer in the long run, fears Tikhomirov. Even in the case of the general economic situation improved access to capital markets will remain limited because the rating agencies operate with a lag.
However, until the situation has not improved. Fitch indicated that the rating assigned to Russia BBB- based on the assumption that the average price of a barrel of Brent crude oil is $ 70. While the oil is rapidly becoming cheaper ( see. graph): January 9, Brent quotes during trading fell below $ 50 a barrel for the first time since 2009. The situation is too volatile, writes Citi in the review « Oil and trouble ahead.” Forecast Citi ?? $ 63 per barrel for the year. Oversupply, has developed because of shale gas revolution in the US and Saudi Arabia refusing to cut production in order to maintain market share, will continue in the first half of 2015 but the main risks ?? Geopolitical: income countries ?? oil exporters are reduced, which can lead to deterioration of the socio-economic situation and the general destabilization. The pressure will be even stronger in countries that are faced with sanctions and internal problems ?? in Russia and Iran, says Citi: the longer will be kept low oil prices, the greater may be the geopolitical conflict with the rest of the world due to suspicions of manipulation of commodity prices.
Even at $ 70 per barrel Fitch predicts decline of the Russian economy by 4% in 2015 .: if the prices are lower, the recession will be deeper and the pressure on state finances ?? stronger, which severely limit the power of space to maneuver.
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