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. Last Updated: 07/27/2016

Moody's Mulls Rating Upgrade

LONDON -- Russia may win a credit rating upgrade from Moody's Investors Services, which could bring it to just one notch from an investment grade rating, the credit rating agency said Monday.

Moody's said in a statement it had placed Russia's Ba2/Ba3 foreign-currency ceilings for bonds and bank deposits on review for possible upgrade in light of the country's strong economic performance and proactive government debt management strategy.

Ba2 is two grades below investment grade.

Standard and Poor's Russian rating is at an equivalent level, but Fitch's is a notch higher.

"We are braced for a move to full investment grade soon after the parliamentary/presidential elections in December '03/March '04," Bear Stearns analyst Tim Ash said.

News of the potential upgrade boosted Russian debt prices. The 2030 eurobond had been showing a loss on Monday of 1/8, but traded higher for a gain of 1/8 at 91-7/8 after the Moody's report.

A higher credit rating typically allows a wider investment base to hold the bonds.

Investment grade Mexico trades 220 basis points more than U.S. Treasuries, according to the benchmark J.P. Morgan Emerging Market Bond Index Plus (EMBI+), while Russia trades 283 wide of Treasuries.

Moody's said the review would focus on the likelihood of continued political stability and of improvements in the climate for domestic and foreign investment as well as structural reforms in key areas, such as banking, natural monopolies and public administration.

Moody's said that Russia now had a cushion for debt payments for the next five years.

"The government's debt management strategy is successfully and rapidly reducing foreign currency debt and reorienting Russia's borrowing needs towards local capital markets," Moody's analyst Jonathan Schiffer said.

He said the capital markets are improving due to the infusion of funds from a recently reformed pension program.

"In addition, structural reforms are progressing in various areas at a measured pace," he added.