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. Last Updated: 07/27/2016

Moody's Drops Hints of Another Upgrade

Moody's Investors Service on Thursday placed Russia's credit ratings under review for a possible upgrade, citing improvements in the country's finances and debt servicing abilities.

An upgrade by Moody's, the first of the big three agencies to award Russia investment grade status in late 2003, has been long expected by investors who have driven yield premiums on Russia's shrinking public debt to historic lows.

Russia is winning growing support from investors as it gathers windfall oil revenues in the stabilization fund, which it has drawn on to repay $15 billion in debts to the Paris Club of Western creditor nations.

"The creditworthiness of the Russian Federation continues to benefit not only from growing revenues and foreign currency reserves but also from prudent fiscal management and proactive debt management," Moody's said in a statement.

Russia expects to run a budget surplus of 7 percent of gross domestic product this year, while spending increases mean the projected surplus in the 2006 budget draft now before parliament should fall to 3.2 percent of GDP.

The world's No. 2 oil exporter has also built up foreign exchange and gold reserves of $150 billion, larger than any country outside Asia, making it a net creditor capable of coping with a bout of weaker oil prices.

Moody's said its credit review would look at whether Russia could sustain its strong finances through the commodity price cycle and maintain stability in advance of the 2008 election at the end of President Vladimir Putin's second and, according to the Constitution, final term.

It will also weigh political pressures on the government to boost spending, as well as sharp increases in borrowing by "quasi-sovereigns" -- or state-owned firms which have embarked on a major borrowing spree.

On Thursday, oil major Rosneft signed a deal with Western banks on a $7.5 billion syndicated loan --the largest ever by a Russian company.

Moody's has a foreign currency ceiling for Russian bonds of Baa3.

It also said it had placed the Aries notes, issued by Germany and backed by Russia's Paris Club debts, on review for a possible upgrade.

Russia's benchmark 2030 Eurobond gained half a point for a bid yield of 5.255 percent. Based on JP Morgan's EMBI+ index, Russia was yielding 114 basis points over risk-free U.S. Treasuries, down four pips.

"We have this sneaky suspicion that Moody's might just try and push the boat out a little further. ... Two notches would bring some additional cheers to the market," Bear Stearns analyst Tim Ash said in a note.