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S&P Global downgrades Russia’s rating on foreign currency payments

Russia's rating

Moscow, (Business News Report)|| Financial rating agency, S&P Global Ratings, has announced the downgrade of Russia’s foreign currency payments rating.

S&P Global said it had lowered Russia’s rating to a “selective default” after Moscow repaid its debt in rubles last week.

The agency’s rating for payments in foreign currencies such as the dollar was downgraded to “SD”, while the rating remained at “CC” for payments in rubles.

There is only one score below SD on the agency’s scale, D, for default.

“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,” S&P Global said in the note announcing the downgrade.

The agency expects that sanctions against Russia will be tightened in the coming weeks, which “hampers Russia’s desire and technical capabilities to respect the terms and conditions of its obligations towards foreign debtors.”

Like all countries, Russia borrows money in the form of bonds, often in dollars, and must regularly pay interest and repay the principal.

The state is considered in default when it is unable to meet its financial obligations to its creditors, who may be countries or financial institutions (the International Monetary Fund, the World Bank…) or investors in financial markets. The default is considered partial when the state does not pay part of its obligations.

For several weeks, Russia avoided the risk of default, as the US Treasury allowed the use of foreign currencies held by Moscow abroad to pay off foreign debts.

In March, Russia paid parts of the interest in this way, showing its willingness and ability to pay.

But since Monday, the United States no longer allows Russia to repay its debts with dollars held in American banks.

As a result, JPMorgan, the correspondent bank, blocked the payment.

Then, on Wednesday, the Russian Finance Ministry announced that it had paid in rubles nearly $650 million due on April 4.

The three major rating agencies, S&P, Fitch and Moody’s, acted as judges to announce a country’s default.

But both Fitch and Moody’s abandoned the assessment of the debts of the Russian state and companies, in the framework of the sanctions imposed on Moscow. S&P Global Ratings was supposed to stop ratings by April 15, but finally announced Saturday that it would stop doing so immediately.

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