Overview
- It is our understanding that investors did not receive the coupon payment on the Russian government's US$-denominated Eurobonds when the payment was due on March 16, 2022, owing to technical difficulties related to international sanctions. We also understand that there is a 30-day grace period on the relevant bonds.
- Public statements by the Russian Ministry of Finance suggest to us that the government currently still attempts to transfer the payment to the bondholders.
- Consequently, we think that debt service payments on Russia's Eurobonds due in the next few weeks may face similar technical difficulties.
- We also understand that some nonresident holders of Russia's local currency debt (OFZ) might not be able to access debt service payments on those bonds in Russia, though so far the available information about this is incomplete.
- At this point, we consider that Russia's debt is highly vulnerable to nonpayment.
- As a result, we lowered our long-term foreign and local currency sovereign credit ratings on Russia to 'CC' from 'CCC-' and kept them on CreditWatch with negative implications.
Rating Action
On March 17, 2022, S&P Global Ratings lowered its foreign and local currency sovereign credit ratings on Russia to 'CC/C' from 'CCC-/C'. We also revised downward our transfer and convertibility assessment to 'CC' from 'CCC-'. The ratings remain on CreditWatch negative. In addition, we have converted our issuer and issue-level ratings on Russia to "unsolicited."
Our ratings focus on an issuer's ability and willingness to meet its financial obligations in full and on time as well as in accordance with the terms of the obligation, including in the agreed currencies. If funds are not accessible for investors or if a payment is made in a currency not stipulated in the terms of the obligation and we believe that the investor does not agree to the alternative payment, we could deem this a default.
As "sovereign ratings" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on Russia are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar (see "Calendar Of 2022 EMEA Sovereign, Regional, And Local Government Rating Publication Dates," published Dec. 16, 2021, on RatingsDirect). Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation. In this case, the reason for the deviation is technical and institutional obstacles that could disrupt timely government debt service. The next scheduled publication on Russia's sovereign rating is on May 27, 2022.
CreditWatch
The ratings remain on CreditWatch negative to indicate that we could lower the foreign currency issuer credit ratings to 'SD' if the Russian government fails to make a debt service payment in accordance with the terms of the obligation, and if we do not expect such payment to be made within an applicable grace period. In addition, we would lower the local currency ratings to 'SD' if we were to assess that some nonresident bondholders are unable to access debt service payments on OFZ also within an applicable grace period.
Rationale
The downgrade follows the Russian government's reported difficulties meeting debt-service payments on the due date on its US$-denominated 2023 and 2043 Eurobonds. The payment was due on March 16. Although public statements by the Russian Ministry of Finance suggest to us that the government currently still attempts to transfer the payment to the bondholders, we think that debt service payments on Russia's Eurobonds due in the next few weeks may face similar technical difficulties. Also, an exemption currently granted under the U.S. sanctions will expire on May 25, which could further complicate Russia's timely debt service payments after that date.
The payment difficulties stem from the international sanctions that reduced Russia's available foreign exchange reserves and restricted its access to the global financial system, markets, and infrastructure. They also follow the series of measures, rolled out by the Russian authorities, aimed at shielding the ruble while preserving remaining usable reserve buffers. These measures entail a ban on cross-border financial flows, including debt service payments of both the private sector and the government. All these have restricted the ability of nonresident domestic and foreign currency bondholders to receive interest, principal payments, or both on time.
It's also our understanding that funds transferred by the Russian government for debt service payments on its domestic bonds (OFZ) to the Russian domestic accounts might not be available to some nonresident bondholders. We expect to receive more clarity about this.
Environmental, social, and governance (ESG) credit factors for this change in credit rating/outlook and/or CreditWatch status:
- Other governance factors
Related Criteria
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- Criteria | Governments | Sovereigns: Sovereign Rating Methodology, Dec. 18, 2017
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- General Criteria: Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
- General Criteria: Methodology: Criteria For Determining Transfer And Convertibility Assessments, May 18, 2009
Related Research
- Sovereign Ratings List, Feb. 7, 2022
- Sovereign Ratings History, Feb. 7, 2022
In accordance with our relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable (see 'Related Criteria And Research'). At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action (see 'Related Criteria And Research').
Ratings List
| Downgraded | ||
|---|---|---|
| To | From | |
|
Russia |
||
| Transfer & Convertibility Assessment |U~ | CC | CCC- |
|
Russia |
||
| Senior Unsecured |U~ | CC/Watch Neg | CCC-/Watch Neg |
| Downgraded | ||
| To | From | |
|
Russia |
||
| Sovereign Credit Rating |U~ | CC/Watch Neg/C | CCC-/Watch Neg/C |
| |U~ Unsolicited ratings with no issuer participation, and/or no access to internal documents, and/or no access to management. | ||
This unsolicited rating(s) was initiated by a party other than the Issuer (as defined in S&P Global Ratings' policies). It may be based solely on publicly available information and may or may not involve the participation of the Issuer and/or access to the Issuer's internal documents and/or access to management. S&P Global Ratings has used information from sources believed to be reliable based on standards established in our policies and procedures, but does not guarantee the accuracy, adequacy, or completeness of any information used.
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. A description of each of S&P Global Ratings' rating categories is contained in "S&P Global Ratings Definitions" at https://www.standardandpoors.com/en_US/web/guest/article/-/view/sourceId/504352 Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following S&P Global Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; or Stockholm (46) 8-440-5914
| Additional Contact: | Sovereign and IPF EMEA; SOVIPF@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.