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Fitch downgrades 26 Russian commodity companies

05 March 2022 10:42 (UTC +04:00)

Fitch Ratings has downgraded 26 Russian natural resource companies, placed the ratings of 28 entities on Rating Watch Negative (RWN), and maintained one company on RWN. A full list of rating actions is below, APA-Economics reports citing the Russian press.

The rating actions reflect the severe shock to the operating environment in Russia and weakened financial flexibility, and follow the agency's downgrade of Russia's sovereign ratings on 2 March 2022 (see 'Fitch Downgrades Russia to 'B'; on Rating Watch Negative' at www.fitchratings.com.

The severity of international sanctions in response to Russia's military operations across multiple fronts in Ukraine represents a huge shock to Russia's credit fundamentals. Together with Russia's counter-measures, they weaken the operating environment of its corporates, in particular their access to external funding, but also via rouble depreciation, and macroeconomic fundamentals such as a lowering of trend GDP growth and rising inflation expectations.

The sanctions and Russia's restrictions are both broad and targeted on certain sectors and corporates. They include limits on companies' ability to transfer money overseas to meet new foreign liabilities and require exporters to convert 80% of export receipts into Russian roubles. We expect restrictions to tighten further, elevating the risk of acute loss of domestic economic confidence, and increasing the risk that timely payment of coupons or principal on borrowings by corporates may be adversely affected.

As a result, we have reduced our assessment of financial flexibility for all Russian corporates, most significantly for export-oriented industries and for issuers with significant external or foreign currency funding.

The Long-Term Foreign-Currency Issuer Default Ratings (LT FC IDR) of issuers previously rated above 'B' have been downgraded to 'B'. For Long-Term Local-Currency (LT LC) IDRs, we have drawn a distinction between companies with material external exposures and those with domestically-focused businesses and funding. For companies reliant on exports or with external funding, the LT LC IDRs are at the level of the sovereign LT FC IDR. Only for domestically-focused businesses with no material hard currency borrowings do we see this as representing a meaningful differentiator.