Sanctions against Russia: probable default of payment by Gazprom and other Russian hydrocarbon companies

Credit rating agency Fitch on Saturday downgraded the debt rating of 28 Russian natural resource groups and said “default of some sort seems likely.”

• Read also: Spotify draws a line under its paying subscribers in Russia

• Read also: What does default mean for Russia?

• Read also: The European Union adds 160 Russians to its blacklist and sanctions Belarusian finance

Fitch downgraded gas giant Gazprom, oil company Lukoil, miners Rusal, Polyus, Evraz and 23 other resource companies from B to ‘CC mostly’, meaning it is ‘likely’ that these companies do not honor their financial commitments.

The ratings of Gazprom and Lukoil had also been downgraded this week by Moody’s, another rating agency, to a level indicating a very high risk of non-reimbursement.

For the rating agency, the authorization given by the Russian government to reimburse in ruble the debts contracted with countries which appear on a list of “hostile” countries might compromise the ability of these companies to pay their creditors on time.

This list includes, among others, the countries of the European Union, Australia, the United Kingdom, Canada, Monaco, South Korea, the United States, Switzerland and Japan.

This measure is part of a series of actions by the Russian government and the country’s central bank to try to limit the fall of the national currency, the ruble, which has lost half its value since January 1 due to the sanctions imposed on Moscow by the West following the Russian invasion of Ukraine.

Fitch further adds that “continued tightening of sanctions, including restrictions on trade and energy imports, increases the likelihood of a political response from Russia, and further weakens its economy, eroding the operating environment of its companies”.

The United States announced on Tuesday an embargo on Russian oil and gas imports, like the United Kingdom for oil.

In early March, three major rating agencies placed Russia’s long-term debt rating in the category of countries likely to be unable to repay their debt due to the accumulation of sanctions once morest it. Fitch subsequently lowered its rating further, indicating that the risk of a sovereign default was in its eyes “imminent”.

The lower a credit rating, the less confidence lenders will have in the country and the less it will be able to borrow money at reasonable interest rates.