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. Last Updated: 07/27/2016

Moody’s Eyes Higher Rating for Country

The decision by Moody’s Investors Service to review the nation’s sovereign rating is a small step toward repairing the country’s image in the eyes of the international financial community, analysts said.

The ratings agency said Wednesday it was assessing the possibilities for an upgrade to the nation’s medium-to-long- term foreign currency country and bank deposit ceilings, rated B3 and Caa1 respectively, which were downgraded immediately after 1998 ruble devaluation.

"This is obviously good," said Goldman Sachs economist Al Breach, adding that Moody’s was likely to move the rating up one notch within the "B" group to the B2 category.

"It is a sign that investor sentiment is improving toward Russia and it is part of the process of rehabilitating Russia after the 1998 crash."

A more significant step would be to move Russia from the B group to the next group of BB, opening the nation to financial institutions with stricter investment rules.

Russia is still far away from Moody’s investment grade of Baa, as Moody’s indicated in a statement outlining daunting tasks for Russia.

"Ahead lie attempted structural reforms in land markets, labor and bankruptcy legislation, and social welfare as well as overhaul of the banking system," it said.

"As always in Russia, enforcing effective implementation will prove even more difficult than gaining legislative approval."

Moody’s also plans to review all outstanding Russian Eurobonds, the state medium-to-long-term local currency rating for OFZ bonds, currently Caa2, and the Caa2 ratings for MinFin bonds series six and seven.

It said it would not review ratings on MinFin bonds series three, four and five.

Series three is in the process of being restructured, and series four and five could be as well, although Finance Minister Alexei Kudrin said Tuesday that restructuring series four and five was not on the agenda for September.

Sergei Voloboyev, economist at Credit Suisse First Boston, said that a Moody’s upgrade would mean the agency would rate Russia a notch higher than Fitch IBCA and Standard & Poor’s, which assign Russia a B-minus rating.

Luke Spajic, a market strategist at Lehman Brothers, said many believed Moody’s, like many other rating agencies, lagged behind events in Russia.

"The rating agencies have been behind the curve in Russia for about half a year," he said. "If we look at the stock market, we can see that foreign investors believed in Russia already in the third or fourth quarter last year."

Kudrin has said Russia wanted a rating upgrade before launching a new Eurobond next year.

But Vladimir Merkushev, an analyst at CentreInvest Group, said the nation, whose coffers are stuffed with oil dollars, might not issue new foreign debt before November 2001, when the government was due to redeem a $1 billion bond.