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. Last Updated: 07/27/2016

Moody's Changes Its Regional Ratings

Trying to work in a change in sentiment toward emerging markets, international rating agency Moody's Investors Services has revised the outlook on currency ratings of eight Russian regions.

Moody's last week changed its outlook from negative to stable on St. Petersburg and Samara, which both rated Caa1; Sverdlovsk, Komi, Tatarstan and Moscow region all rated Caa3; and two regions - Sakha and Nizhny Novgorod region - rated Ca.

Three public borrowers - Moscow city, Yamal-Nenets and the Krasnoyarsk region - retained a Caa1 rating with a negative outlook.

"When we assign public ratings outside the United States, we believe that they carry the same level of default probability," said Elisabeth Rudman, an analyst with Moody's in London.

Default statistics published by Moody's are usually drawn on the basis of data on corporate issuers.

This means regional Russian borrowers face a more than a 50/50 chance that eight years from now they will refuse to honor assumed liabilities.

Nevertheless, investors are happy to get even a ballpark guess of a risk level for investments in Russia.

"At least, people will be able to get an overall picture of what's happening," Rudman said.

Often, Russian securities remain a pig in a poke for their buyers.

"Some small- and medium-sized Russian companies and banks have been buying debts of local companies in recent weeks," said a London-based banker who asked not to be identified. "But most of the buying is done without a clear plan of what can be done with these debts in the future."

Probably, financial companies will try to swap these debt liabilities for barter deliveries or exchange them for debts of other companies.

But neither Russian investors nor foreigners have a clear idea of how the debtors' solvency could be measured.

"Most often investment decisions are made intuitively because Russian financials are reported in such a messy way," said Irina Shevchenko, head of fixed-income sales with Alfa Bank. "So ratings are helpful even if they are lagging indicators."

For Russian borrowers themselves, even a minor change in the rating is a piece of positive news.

"It is a political issue for many local governments and also an indication that things are gradually improving in Russia," Shevchenko said.

Moody's upgraded the regional borrowers two weeks after changing the outlook on Russia's long-term foreign currency bonds - rated B3 - to stable from negative in early January.

Last year's defaults totaled a record $44.6 billion, while issuers rated by Moody's defaulted on $35.6 billion out of a total of $13.7 trillion of rated securities.