– Ratings agency S&P Global on Thursday cut Russia’s credit rating deeper into junk territory as fresh international sanctions triggered by its invasion of Ukraine, and the nation’s own protective measures, ramped up default risk.
S&P downgraded the sovereign rating to “CCC-minus” from “BB-plus” less than a week after dropping it from investment grade.
Russia’s invasion of Ukraine, the biggest attack on a European state since World War Two, has thrown its financial markets into turmoil after several countries imposed sanctions and global brands exited the nation in droves.
“The downgrade follows the imposition of measures that we believe will likely substantially increase the risk of default,” the agency said.
New restrictions from the G7 countries and capital controls introduced by the Russian government to protect the rouble could constrain the nation’s ability to pay its debt, S&P said.
The ratings agency also warned of further downgrades as it kept the sovereign on negative watch.
“We expect to resolve the CreditWatch placement once we have more clarity on the technical ability and/or willingness of the government to honor its debt obligations in full and on time.”
The ability to honor debt obligations is already in question. Russia’s National Settlement Depository said Thursday that coupon payouts due Wednesday on the country’s OFZ government bonds had been made only to local holders, citing a central bank order barring payments to foreigners.
Russia has over $700 million worth of government bond payments due this month. Its ample reserves would allow to cover those payments, but a freeze on some assets and other measures could affect its ability to make them.
Five-year credit default swaps, the cost to insure against a Russian default, this week traded near 2,000 basis points from just over 200 bps in mid-February. Those were quoted Thursday around 1,300 bps.
Rating agencies Fitch and Moody’s downgraded Russia’s rating by six notches to junk status on Wednesday, saying Western sanctions threw into doubt Russia’s ability to service debt and would weaken the economy. That sent the Russian rouble to record lows against the dollar and euro on Thursday.