PCM analysis, 1 Mar 18
Russian sovereign debt elevated to investment grade rating
Whilst we hold a healthy skepticism towards the quality of work undertaken by the major rating agencies and are reluctant to overstate the importance of their judgements, we believe that the S&P Global Ratings’ decision to raise Russia’s long-term and short-term sovereign credit rating to BBB-/A-3 on 23 February 2018, qualifying the country’s debt as being of investment grade, will anyhow be noticed by the broader market.
Generally-speaking, there are two factors keeping foreign institutional investors away from the Russian public equity market; concerns over the country’s economy and political factors. Whilst it would be both speculative and difficult to suggest when the current political tensions might abate, investors are increasingly aware that fears they may have held over the Russian economy on the grounds of lower commodity prices and sanctions, have proven unfounded.
Many investors have been under the impression that the Russian economy is fragile and would suffer under the current circumstances. We have long argued otherwise, noting that the economy is rather resilient and recovering well. S&P Global Ratings’ rerating of the Russian debt and The Fitch Ratings’ reaffirmation of the same as investment grade is likely to be helpful in providing third-party support, underlining the positive macroeconomic environment in which our portfolio companies are operating.