Russia's long-term sovereign credit rating outlook was lowered to negative by Standard & Poor’s Ratings Services because the cost of the government's “bank rescue operation” may increase.
The outlook was cut from stable, reflecting the increased probability for a downgrade, S&P said in an e-mailed statement on Thursday. Russia has committed as much as 15 per cent of gross domestic product in budgetary and reserve funds to maintain banking liquidity, it said.
“Russia is obviously very exposed,” said Lars Christensen, an emerging markets analyst at Danske Bank A/S, by telephone from Copenhagen. “The speed that Russia is being drained of hard currency is extremely fast. Just as Russia has benefited from the high oil prices, so now it is exposed as they drop.”
The government has pledged more than $200 billion to stem the worst financial crisis since 1998, including a banking liquidity boost worth $86 billion, following capital outflow. Slumping commodities prices, the war with Georgia and the seizing up of global capital markets prompted investors to pull at least $63 billion from Russia since August 8, UniCredit SpA estimates.
“It is difficult at present to determine the ultimate impact on the public sector balance sheet of the banking system bailout, not least due to the uncertain outlook on asset quality,” S&P said.
Russia, the world's biggest energy exporter, supplies a quarter of Europe's natural gas needs and the European Union is Russia's main trade partner.
Growth Forecast: Growth in the 15-nation euro region will probably slow to 0.2 per cent in 2009 from an estimated 1.3 per cent this year, according to the International Monetary Fund. European gas prices track the price of oil with a time lag of six-to nine months.
The price of Urals blend of crude fell to $61.81 a barrel on Wednesday, the lowest level this year, after peaking at $142.50 in July. It has averaged $105.88 a barrel since the beginning of the year, according to Bloomberg data.
The central bank estimated net private capital outflow may reach $20 billion this year, compared with the previous forecast of net inflow of $40 billion. The nation received a record net inflow of $82.3 billion last year.
“We are perhaps better prepared for the current situation than many other countries,” President Dmitry Medvedev's economic aide, Arkady Dvorkovich, said on Wednesday. Russia can use its reserves to boost the economy and ensure “stability” of the financial industry, he said.
Shrinking Reserves: Russia's reserves fell $14.9 billion last week to $515.7 billion, a third straight week of decline, after the central bank sold foreign currency to prop up the ruble. The ruble weakened as much as 0.5 per cent to 27.0664 to the dollar, the lowest since July 2006. The ruble was 0.1 per cent lower at 26.9538 as of 5:12 pm in Moscow, from 26.9277 on Wednesday.
“The speed of the fall in reserves is quite alarming,” said Vladimir Tikhomirov, the chief economist at UralSib Financial Corp. in Moscow. He called the central bank's forecast of $547 billion in reserves by year-end “overly optimistic” and estimated a total of $500 billion by January 1, 2009.
Russian government bonds fell, with the yield on the 7.5 per cent bond due 2030 rising 8 basis points to 10.94 per cent, the highest for more than six years. The 12.75 per cent bond maturing 2028 yielded 10.56 per cent, up 84 basis points to a six-year high. The yield on the 11 per cent bond due 2018 jumped 93 points to 8 per cent, the most since 2004.
Financial Rescues: The “skyrocketing” cost of financial rescue operations is not “only true for Russia,” said Pavel Pikulev, a fixed-income strategist at Trust Investment Bank in Moscow.
''At least Russia still has a budget surplus and the third biggest foreign reserves in the world, while many other nations are already saving their banks using their good name more than real funds.''
S&P affirmed Russia's BBB+ long-term foreign currency and the A- long-term local currency ratings and the short-term ratings of A-2.
''We expect Russian corporate and financial sector default rates to increase as debtors' access to official funds will vary,'' S&P said in the statement. ''Other uncertainties remain regarding what the economic policy response will be to weakening growth, and whether the ongoing concentration of the financial system in state hands is permanent or temporary.''
To contact the reporters on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net; Maria Levitov in Moscow at mlevitov@bloomberg.net
