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. Last Updated: 07/27/2016

Russia May Get Higher Credit Rating

Russia, which made a triumphant debut on the international Eurobond market last November, is likely to see its credit rating upgraded soon, analysts said.


But it will have to wait a few years for an investment grade, allowing many institutional investors to buy its debt, they said.


"There is a reasonable chance the upgrade will happen in late 1997 or start of 1998," Morgan Stanley Vice President Eric Fine said. "It is going to take at least another two years before it gets an investment grade."


Last year, Standard & Poor's awarded Russia a BB- rating, Moody's gave it Ba2 and IBCA BB+.


Russia has since placed two well-received dollar Eurobonds and one Deutsche mark Eurobond, and officials say improved tax collection may make a further planned Eurobond this year unnecessary.


Standard & Poor's and IBCA's investment grade starts with BBB and Moody's with Baa.


"I do not think there will be a two-notch upgrade this year, but it may happen next year," an analyst with a big investment bank in London said.


Most analysts said the sovereign credit rating could be raised by one point on the back of stronger political stability, falling interest rates, better tax collection and first signs of economic growth.


But several uncertainties and persistent problems would appear to rule out an investment grade for now, they said.


It is unclear how sustainable the improved tax collection will be and when lower interest rates will start to generate investment in the real sector. The economy is still choked by a web of unpaid bills, and Russia's short credit history would not allow an investment grade, they said.


Standard & Poor's said Russia's fiscal problems had worsened since last October, when the agency assigned the rating.


The government says revenues improved in the second quarter after a poor first three months and it collected 90 percent of budgeted taxes in the first half of 1997 compared with about 88 percent in the first half of last year.


But the London bank analyst said agencies would not be interested only in figures, but would want to see whether Russia is moving in the right economic and political directions.


"The most important things for rating agencies are not bare figures, but to see confidence of investors, both foreign and Russian, in putting money not only in purely speculative operations, but in industry, in creating new jobs, and I think the story is beginning to unfold," he said.


"Political performance is more important and that has been encouraging," he said. "Generally the picture is definitely encouraging."


Renaissance Capital chief economist Roland Nash said many positive events have happened in Russia since last year.


President Boris Yeltsin has returned to active political life after heart surgery and pneumonia sidelined him at the end of 1996 and early this year.


His appointment of Boris Nemtsov and Anatoly Chubais as first deputy prime ministers was welcomed by investors who saw them as guarantors of more democracy and market changes.


The ruble is firming in real terms, there are tentative signs that it is becoming accepted as a store of value, and falling interest rates should stimulate investment at some point, Nash said.


"There has been a lot of positive news since the last credit rating and therefore there is some chance that it will be upgraded by one point," he said.


CS First Boston analyst Sergei Voloboyev said another important factor was that capital, which had been fleeing Russia since the start of economic reforms, had started to come back.


He said Russia had a better debt to gross domestic product ratio than any of the East European countries. Russia stood at 30.8, against 40.5 for the Czech Republic and 53.5 for Poland -- both of which have investment grades.