The international rating agency S&P has downgraded Russia’s long-term sovereign credit rating in foreign currency from C to SD.
“We have downgraded our foreign currency issuer credit ratings upon request for Russia from CC/C to SD/SD (selective default),” the rating agency said.
At the same time, the agency noted that Russia fulfilled its obligations in rubles on sovereign Eurobonds to foreign holders. “At this time, we do not expect investors to be able to convert these ruble payments into dollar equivalents of the original amounts, or that the government will remit these payments within a 30-day grace period, in part because we believe sanctions on Russia are likely to will be further strengthened in the coming weeks,” S&P said.
The agency believes that this will hinder Russia’s technical ability to fulfill the terms of its obligations to foreign bondholders.
S&P has given Russian government foreign currency bonds a “selective default” status as the government has paid foreign holders of its Eurobonds in rubles instead of the due dollars, and S&P does not expect the Ministry of Finance to change this situation by May 4 (the grace period for being able to eliminate the potential default) or allow holders to convert ruble payments into dollars without loss. However, Russia’s local currency rating remains at pre-default (CC/C) as although there have been reports that non-residents cannot receive coupon payments on federal loan bonds (OFZ) due to restrictions imposed by the Bank of Russia, S&P does not have complete information about this domestic process.
International rating agencies have already downgraded Russia’s credit rating to junk levels several times. So, in early March, Moody’s downgraded Russia’s rating by six steps at once – to B3, Fitch – from BBB to B.