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INTERVIEW-Russia outlook clouded by oil, new sanctions risk -S&P

MOSCOW, July 4 (Reuters) - The outlook for Russia's sovereign credit rating is clouded by the prospect of a new round of U.S. sanctions, oil price weakness and doubts over its economic recovery, S&P Global's primary analyst for the country said.

S&P has Russia's long-term foreign-currency rating one notch below investment grade at BB+, but revised its outlook on Russia to positive from stable in March.

Russian officials have been talking up the prospect that international rating agencies like S&P will lift Russia out of the "junk" category if the Russian economy returns to growth this year after two years of contraction as expected.

Ravi Bhatia, S&P Global's director for sovereign and international public finance ratings, said that while there were strong aspects to Russia's story, new risks had emerged since S&P raised its outlook in March.

"There are some issues on the horizon. One is the possible new round of sanctions, another is the oil price, a third is whether this recovery in Russian GDP growth is going to be sustained," Bhatia told Reuters in an interview.

Russia, for which higher ratings would be proof that it has emerged from an economic crisis, is sensitive to fluctuations in global oil prices as the commodity is one of its key exports.

Oil prices hit a seven-month low last month, while a threat by U.S. lawmakers to impose new economic sanctions would depress already low investment levels and hurt Russian asset prices.

"It's a fairly weak economic recovery across the board ... there's a bit of domestic consumption, a bit of investment but the rebound is not so strong," Bhatia said.

Bhatia's comments suggest it is far from certain that S&P will move Russia back to investment grade at its next planned review in September. As primary analyst for Russia, Bhatia presents his views on the Russian economy to the S&P committee which makes the ratings decision.

Russia's central bank governor, Elvira Nabiullina, said last month that she saw grounds for an increase in Russia's rating, while Finance Minister Anton Siluanov said he was confident measures planned by the government would lift the rating.

But while Russian officials publicly express confidence in future ratings upgrades, privately they admit this might not happen in the next few months.

International ratings agencies are "in no way ready to upgrade Russia by the end of the year", said a Russian official who has regular contacts with ratings agencies.

Moody's, another of the big three international ratings agencies, assigns Russia its highest sub-investment grade rating, while Fitch gives Russia its lowest investment-grade rating.

Among strengths for Russia, S&P's Bhatia noted officials were trying to keep fiscal policy relatively tight, the country was broadly stable politically and that it was running consistent current account surpluses.

Regarding possible new U.S. sanctions, Bhatia said restrictions on foreign ownership of Russian assets would be a concern but that Russia would probably to be able to cover its current borrowing needs.

A dearth of structural reforms and bad demographics are added worries, he said. "It's not looking like a dynamic story unless the oil market changes quite considerably," Bhatia said. (Editing by Catherine Evans)