Fitch cuts Russia rating outlook to negative

Fitch Ratings has revised its outlook on Russian long term foreign and local currency debt to negative following the decision by the US and European Union to apply visa restrictions and the freezing of property and assets to a list of individuals that are contributing to the situation in Ukraine.

Although it has reaffirmed the country’s rating at BBB, in its statement Fitch noted: “The revision of the outlook to negative reflects the potential impact of sanctions on Russia’s economy and business environment. Growth slowed to 1.3 per cent in 2013 and investment is contracting. Since US and EU banks and investors may well be reluctant to lend to Russia under the current circumstances, the economy may slow further and the private sector may require official support.

“The direct impact of sanctions announced so far is minor, but the incorporation of Crimea into the Russian Federation will likely lead the EU and US to extend sanctions further in response. Furthermore, foreign investors may anticipate further official action and restrict Russian entities’ access to external financing.”

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It warned: “Risk premiums have already risen and syndicated loans to a number of large corporates are reported to be on hold. In a worst-case scenario, the US may prevent foreign financial institutions from doing business with Russian banks and corporates.”

In early trading Russian markets have struggled with the Micex index – which represents the 50 most liquid Russian stocks on the Moscow exchange – falling 2.67 per cent, according to Bloomberg.