(Bloomberg) -- Russia was downgraded to the second lowest level by Fitch Ratings, which said a bond default is “imminent” as a result of measures ushered in since the war in Ukraine.
The company cut Russia's rating by six notches to C, just one step above borrowers who have already been driven into default, it said in a statement Tuesday.
“The ‘C' rating reflects Fitch's view that a sovereign default is imminent,” it said. “The further ratcheting up of sanctions, and proposals that could limit trade in energy, increase the probability of a policy response by Russia that includes at least selective non-payment of its sovereign debt obligations.”
Russia's credit score is sliding deeper into junk as concern over the repayment of government debt mount. Moody's Investors Service cut its rating on Russia earlier this week, while S&P Ratings has the nation three levels above a default score.
“Current valuations are pricing in a high likelihood of a default,” said Todd Schubert, the head of fixed-income research at Bank of Singapore. “The Fitch downgrade reflects the consequences of Russia's increasing economic, financial and political isolation.”
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The developments since Fitch last downgraded Russia six days ago have further undermined the country's willingness to service government debt, according to the statement. Russia is contending with the economic sanctions that have piled up and left the country increasingly isolated since the war began. The U.S. on Tuesday announced a ban on Russian oil imports.
Fitch cited a step that could force foreign-currency-denominated bonds to be repaid to some creditors in rubles, which have plunged in value since the invasion.
“Default on Russian sovereign eurobonds looks inevitable and is set to last some time, with bleak recovery prospects,” Stuart Culverhouse, the head of sovereign and fixed-income research at Tellimer, a research firm that specializes in emerging markets, wrote in a note published Monday before the downgrade. “And bond prices pretty much reflect this, with most USD bonds now trading in the 20-30 range.”
Worries over the impact of the war are rippling to other borrowers. High-grade dollar credit spreads globally widened Tuesday to levels not seen since the middle of 2020, according to a Bloomberg index.
Russia's default may come as soon as April 15, which will mark the end of a 30-day grace period on coupon payments the Russian government owes on dollar bonds due in 2023 and 2043, Morgan Stanley's Simon Waever said in a note Monday.
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