Overview
- It is our understanding that the Russian government made coupon and principal payments on its U.S. dollar-denominated Eurobonds in rubles when those payments were due on April 4, 2022.
- We currently don't expect that investors will be able to convert those ruble payments into dollars equivalent to the originally due amounts, or that the government will convert those payments within a 30-day grace period, in part because we think sanctions on Russia are likely to be further increased in the coming weeks, hampering Russia's willingness and technical abilities to honor the terms and conditions of its obligations to foreign debtholders.
- While it is also our understanding that funds transferred by the Russian government for debt service payments on its local currency bonds (OFZ) to Russian domestic accounts might not be available to some or all nonresident bondholders, definitive information on the payment process is currently not available to us.
- Therefore, we lowered our unsolicited foreign currency issuer credit ratings on Russia to 'SD/SD' (selective default) from 'CC/C'. Our unsolicited local currency 'CC/C' issuer credit ratings on Russia remained on CreditWatch with negative implications.
- We subsequently withdrew our unsolicited ratings on Russia in consideration of the EU's decision on March 15 to ban the provision of credit ratings to legal persons, entities, or bodies established in Russia, and our ensuing announcement that we will withdraw all our outstanding ratings on relevant issuers before April 15, 2022, the deadline imposed by the EU (see "S&P Global Ratings To Withdraw Ratings On Russian Entities," published March 21, 2022)."
Rating Action
On April 8, 2022, S&P Global Ratings lowered its unsolicited long- and short-term foreign currency issuer credit ratings on Russia to 'SD/SD' from 'CC/C'. At the same time, we kept our unsolicited 'CC/C' long- and short-term local currency issuer credit ratings on Russia on CreditWatch negative. We subsequently withdrew our ratings on Russia in consideration of the EU's decision on March 15 to ban the provision of credit ratings to legal persons, entities, or bodies established in Russia, and our ensuing announcement that we will withdraw all our outstanding ratings on relevant issuers before April 15, 2022, the deadline imposed by the EU (see "S&P Global Ratings To Withdraw Ratings On Russian Entities," published March 21, 2022).
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 Russia's payment in rubles on its April 4 Eurobond obligations.
CreditWatch
At the time of the withdrawal, the foreign currency ratings were 'SD/SD' while the local currency ratings were on CreditWatch negative, indicating the high vulnerability of Russia's local currency debt to nonpayment.
Rationale
The foreign currency downgrade follows our understanding that the Russian government made coupon and principal payments on its U.S. dollar-denominated 2022 and 2042 Eurobonds in rubles when those payments were due on April 4, 2022.
Although the default could be remedied under a 30-day grace period allowed under the terms and conditions of the bonds, we don't expect that investors will be able to convert those ruble payments into dollars equivalent to the originally due amounts, or that the government will convert those payments within that grace period. This is in part because in our opinion, sanctions on Russia are likely to be further increased in the coming weeks, hampering Russia's willingness and technical abilities to honor the terms and conditions of its obligations to foreign debtholders.
Our ratings reflect our view of 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.
While it is also our understanding that funds transferred by the Russian government for debt service payments on its local currency bonds (OFZ) to Russian domestic accounts might not be available to some or all nonresident bondholders, definitive information on the payment process is currently not available to us.
We also understand that a temporary exemption in U.S. sanctions that allows U.S. investors to receive Russian debt payments is due to expire May 25, 2022.
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, April 5, 2022
- Sovereign Ratings History, April 5, 2022
- S&P Global Ratings To Withdraw Ratings On Russian Entities, March 21, 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 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; Not Rated Action | |||
|---|---|---|---|
| Final | To | From | |
|
Russia |
|||
| Sovereign Credit Rating | |||
| Foreign Currency |U~ | NR | SD/SD | CC/Watch Neg/C |
| Senior Unsecured |U~ | NR | SD | CC/Watch Neg |
| Ratings Remain On CreditWatch; Not Rated Action | |||
|
Russia |
|||
| Sovereign Credit Rating | |||
| Local Currency |U~ | NR | CC/Watch Neg/C | CC/Watch Neg/C |
| Senior Unsecured |U~ | NR | CC/Watch Neg | CC/Watch Neg |
| Transfer & Convertibility Assessment | |||
| Local Currency |U~ | NR | CC | CC |
|U~ Unsolicited ratings with no issuer participation, and/or no access to internal documents, and/or no access to management. NR--Not rated.
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 |
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