Moody's in surprise lift for Russia

[uzbek]

Moody's in surprise lift for Russia
By Päivi Munter in London
Published: October 7 2004 03:00 | Last updated: October 7 2004 03:00

Moody's Investors Service yesterday surprised bond markets by raising the outlook on its credit ratings for Russia from stable to positive, citing the oil-rich country's strong economy.


Moody's rates Russia at the lowest investment grade category of Baa3, one notch higher than either Standard & Poor's or Fitch Ratings, which have Russia in the highest junk grade. A positive outlook means that the next move in the rating is likely to be up.

The move by Moody's contrasts with concerns about the Kremlin's lack of progress with economic reforms, raised by Andrei Illarionov, president Vladimir Putin's economic adviser, in an interview with the Financial Times today.

It also shrugs aside worries about property rights reawakened by the government's campaign against Yukos, the oil company that is lurching towards bankruptcy because of back taxes.

"This outlook change follows several years during which the Russian government has experienced exceptionally strong macroeconomic fundamentals," Moody's said, noting that prudent fiscal policies had fuelled strong growth in Russia's foreign currency reserves.

Following the financial crisis of 1998, the government has been careful to stash away an unprecedented windfall from record high prices for oil, the country's main export.

Russian central bank's foreign currency reserves have risen to record high of $95.1bn and the government's oil stabilisation fund is expected to near Rbs600bn ($20.5bn) by the end of the year.

Russia has halved its government debt since its $40bn domestic bond default six years ago. Moody's expects debt to fall to 25 per cent of gross domestic product by the end of this year.

Vincent Truglia at Moody's said: "It is not a rating on a government's economic programme or the transparency of corporate governance. It's a rating about the government's ability to pay its debt."

Prices for Russia's sovereign bonds rose following the announcement. The 30-year dollar-denominated bond rose 0.7 points to 97.688, leaving the spread over US Treasuries down 8 basis points at 213bp.

Robin Evans, head of emerging market debt trading at Commerzbank, said: "With oil above $50 a barrel, it's hard to argue with Moody's."

In spite of Russia's strong public finances, the country's bonds have been underperforming other emerging market debt. This is partly because Germany's controversial Aries deal to repackage Russia's bilateral debt into tradeable securities last summer has raised concerns of further similar transactions. Russia has about $43bn of bilateral debt, according to WestLB.
http://news.ft.com/cms/s/760a10ac-18...00e2511c8.html