Thursday 14 December 2017

Putin starts own ratings agency as fleeing US firms leave void

Russian president Vladimir Putin. Photo: PA
Russian president Vladimir Putin. Photo: PA

Anna Baraulina and Anna Andrianova

Vladimir Putin's homegrown credit-ratings firm is up and running - and foreign competitors are already feeling the heat.

In the past three weeks, Moody's Investors Service and Fitch Ratings have said they plan to stop issuing local ratings rather than agree to having their Moscow branches regulated by the Russian government at the cost of breaking international sanctions.

As the New York-based firms scale back, the venture known as ACRA is poised to fill the void when it starts publishing opinions in the second half.

Russia is squeezing the business of foreign-ratings assessors since downgrades it condemned as politically motivated last year pushed the sovereign below investment grade for the first time in more than a decade. The finance ministry and central bank plan to use ACRA to replace the so-called big three as their yardstick to measure credit quality of investments.

"Cutting off international agencies from national ratings, the state is protecting the local provider," said Ivan Guminov, chief fund manager at Ronin Trust in Moscow. "Until this moment all important ratings were provided by the big three and a new local player would have had a hard time to conquer a share on this market if it had to compete with them. "

Moody's last week announced it would close its joint venture in Moscow of 12 years, and on Friday it withdrew Russia national scale ratings.

On February 29, Fitch said it will probably stop issuing local ratings on Russian companies, the same day that ACRA (which stands for Analytical Credit Rating Agency) applied for a licence to operate in Russia. Standard & Poor's said it is in talks with the central bank about how to maintain a domestic presence under the new rules.

The Bank of Russia announced plans to start a company immune to "geopolitical risks" in July after S&P and Moody's cut Russia's rating to junk because of the economic impact of sanctions imposed over Ukraine.

On March 4, Moody's said it may downgrade Russia's Ba1 rating further because of the oil shock. The central bank will stop using S&P, Moody's and Fitch in its decision-making, according to Elena Chaikovskaya, head of financial markets development. ACRA is so far the only agency which asked for accreditation under new rules, she said on Monday.

In the weeks that followed Putin's annexation of Crimea two years ago, oligarchs associated with the president faced US penalties. That prompted foreign ratings firms to withdraw coverage on banks the businessmen controlled, leaving the finance ministry with no way to assess how safe its deposits were.

"It happened that we didn't have any idea of those banks' credit quality," Deputy Finance Minister Alexey Moiseev said last month, explaining why Russia needs an alternative to the big three firms. Credit assessments from international firms have long been used by private investors in Russia to manage risk and by the Bank of Russia to regulate the financial industry.

Other local investors will also see it as a positive, said Suki Mann, a former head of European credit strategy at UBS Group AG.

"It can provide transparency and ultimately it will help investors with their own decision-making processes," said Mann. ACRA's board is headed by an American, Karl Johansson, who advised the Russian government while at Ernst & Young in Moscow. Ekaterina Trofimova, a former banking analyst for Russia and former Soviet states at S&P, will run the new venture. Some 27 shareholders, including Sberbank, Raiffeisenbank and Severstal PAO among others, will each have 3.7pc of 3bn rubles (€40m) of the authorised capital.

ACRA won't have a political agenda and its 23 analysts have "very deep knowledge of Russian industries," Johansson said. Outside investors are more likely to see the venture as an attempt by Russia to hit back at the West, said London-based money manager Paul McNamara, who helps oversee €4bn of assets at GAM UK, who said he will disregard the research.

"Any Russian agency would undoubtedly be regarded as being in the pocket of the Kremlin," McNamara said. The move is a "standard response to being downgraded. Nobody in the market cares."


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