Source: Finmarket with additional commentary by Chris Devonshire-Ellis
The Chinese rating agency China Chengxin Asia Pacific (CCXGF) will shortly be offering credit ratings for Russia and Russian businesses after clarifying new methodologies and criteria for assessing the risks, according to CEO Yan Yan. The comments were made during a signing ceremony of a MoU concerning the development between the rating agencies of Russia and China.
Yan stated that “We need to clarify some issues related to the new methodology, with new criteria for evaluating the Russian sovereign rating. Due to the fact that the dollar is now being abandoned, new data will be used for calculations. As soon as we clarify these data, we will be able to assign a credit rating to Russia. We hope that this will happen as soon as possible and we will work in this direction.”
The US-based credit agencies, S&P Global, Fitch Ratings and Moody’s all exited Russia in early 2022 leaving a market gap. That has partially been filled by domestic players such as ACRA and UniCredit, however the move by non-Russian ratings agencies to enter the market provides greater credibility.
Moscow had long complained that the Western agencies did not apply consistent modelling to Russia’s market and consistently downgraded its sovereign rating. Russia actually has some of the lowest sovereign debt in the world. Yet the West’s rating agencies rely on ability to repay debt, and the volume of debt accrued. That works well for US sovereign ratings with some of the worlds highest debt levels; but is less applicable to countries such as Russia whose fiscal policy is more prudent.
Yan also stressed that this issue is also important because a number of Chinese companies would like to receive information about Russia, with the presence of a national rating system important in this aspect.
Marina Chekurova, General Director-Chairman of the Russia’s Board of Expert Ratings, also commented on the prospects for cooperation with colleagues from CCXGF saying “Now is a good time to reach a new level of cooperation, developing both interaction on credit ratings and green ratings, because we see great prospects for green financing in Russia. Of course, Russia does not have the large volumes as in China, but despite all the past events, the green movement, green investment is becoming more and more relevant,” she said.
According to Yan, China’s green bond market is worth some US$85 billion.
“We will be very happy to provide all possible assistance to our Chinese colleagues in their interaction with Russian issuers, with the regulator, of course, with the Russian Ministry of Finance, which is also interested in the further development of the public debt market within the EAEU. We see our role precisely in that we are becoming such a bridge that will allow our companies to get closer to the Chinese market and, of course, access borrowing opportunities there,” Chekurova added.
In March 2022, three major international rating agencies Fitch Ratings, S&P Global Ratings and Moody’s Investors Service withdrew the ratings of all Russian organisations and their subsidiaries in accordance with the sanctions imposed by the West against Russia, making risk assessment extremely difficult and raising the cost of borrowing.
This occurred as part of the fourth package of sanctions adopted by the EU countries on March 15, 2022, European agencies are prohibited from rating Russia and Russian companies, as well as from providing rating services to Russian clients. These players all exited Russia by mid-April 2022.
Now, experienced Russian analysts will be deployed to developing alternative ratings agencies such as CCXGF – and will ultimately usher in a new type of credit ratings analysis that will be capable of balancing opportunities and risks externally from the traditional Western financial and market modelling approach; and apply risk modelling to Western sanctioned economies whose primary markets are not in the United States, EU or their allies.