(Bloomberg) -- Russia was downgraded by S&P Global Ratings for the second time in a week as sweeping sanctions and the nation's increasing isolation increases the risk of a default.
The rating company said on Thursday that it lowered Russia's sovereign rating by eight levels to CCC-, just three steps above debt that has already fallen into default. S&P had just cut Russia to the junk rating of BB+ late last Friday, and the company said the government remains on negative watch, meaning it could be downgraded further.
“The downgrade follows the imposition of measures that we believe will likely substantially increase the risk of default,” S&P wrote in a statement. “Among these are capital controls introduced by authorities that aim at shielding the ruble from the impact of severe economic sanctions while preserving remaining usable reserve buffers.”
The Default Question Hangs Over Russia's Frozen Bond Market
The downgrade is the latest in a string of warnings from rating companies in the days since Russian troops invaded Ukraine. Fitch Ratings on Wednesday slashed its grade of Russia by six levels to B, well below investment grade, a move that was shortly followed by a cut by Moody's Investors Service to B3 from Baa3, also deeply into junk territory.
S&P pointed to the apparent implementation of controls by Russia banning cross-border money flows, including debt-service payments to the private sector. This will likely mean that nonresident debt holders will be unable to receive interest or principal payments on time, according to the firm.
Russia likely has just half of the reserves it did before the nation was struck by a myriad of international sanctions, S&P said. This weakens the country's foreign liquidity just as demand for external currencies spikes.
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