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. Last Updated: 07/27/2016

Nation's Eurobonds Get Rating Upgrade

International rating agency Fitch IBCA has raised the credit rating on Russian Eurobonds to B- from CCC and the short-term foreign currency rating to B from C, citing higher political stability and a string of positive economic developments as reasons for the upgrades.

"The risk of default on Russian Eurobonds has diminished significantly over the last 18 months," Fitch IBCA said Monday in a statement issued in London.

Fitch pointed at signs of recovery in the economy, rising foreign exchange reserves, progress in talks with international creditors and lower political risks as reasons for the improved ratings.

"President [Vladimir] Putin is arguably in a stronger position domestically than that ever enjoyed by his predecessor [Boris Yeltsin]," Fitch said.

The revised ratings failed to lift the Eurobonds, which dropped at the start of the week with benchmark issues maturing to 2028, losing 875 basis points. The nation has issued Eurobonds valued at a total of $15.6 billion.

But analysts expect further improvements in local capital markets will soon help the Eurobonds stage a recovery.

"As soon as full-scale trading resumes after the long holidays - at the end of this week or beginning of next week - the upgraded credit ratings will help push up market prices of both fixed income and equity," said Sergei Prudnik, economic adviser to Troika Dialog investment bank.

Russian Eurobonds are now in a highly speculative grade, according to rating definitions issued by Fitch IBCA, and offer "a limited margin of safety," though they still bear a credit risk.

Though ratings imply no specific prediction of default probability, statistics reported by Fitch IBCA show that on average 3 percent of B-rated bonds go into default each year, while for triple-B bonds the default rate is 0.35 percent. Only 0.1 percent of triple-A corporate bonds in the United States go into default annually.

Russia was rated BB+ by Fitch IBCA in October 1996 and its rating hit its lowest point, CCC, in 1998 through 1999.

Fitch IBCA put Russian Eurobonds on the alert list in February and revised the rating from CCC to B- this week.

At its current prices, Eurobonds' yields are between 15 percent and 18 percent. By raising the ratings of sovereign Eurobonds, Fitch IBCA has made a step toward revising ratings of corporate borrowers and banks.

The agency said Tuesday it placed Moscow Narodny Bank's B+ long-term and D rating on rating alert positive and that the rating decision would be subject to a full rating review in the coming months.

The bank's long-term rating remains above that of the Russian Federation, reflecting its status as a bank regulated in Britain, Fitch said.

The nation's No. 4 oil producer Tatneft said Wednesday it will make a payment on its Eurobond coupon within the 15-day grace period after April 29 when it fell due. The company did not provide any explanation for the delay.

"They do not disclose such information," said Valery Skiba, official at public relations agency Solid-Info, which handles Tatneft's public relations. "Such decisions are driven by internal considerations."


Selected Sovereign Risk Ratings*

Croatia BB+

India BB+

Lithuania BB+

Mexico BB+

Panama BB+

Philippines BB+

Slovakia BB+

Argentina BB

Peru BB

South Africa BB

Kazakhstan BB-

Lebanon BB-

Turkey BB-

Venezuela BB-

Brazil B+

Bulgaria B+

Indonesia B-

Moldova B-

Romania B-

Russia B-

Turkmenistan B-

* Long-term, foreign currency

Source: Fitch IBCA