S&P Global cuts Russia’s credit rating even deeper into 'junk' territory as the risk of default grows

• S&P Global Ratings on Thursday cut Russia's credit deeper into junk territory, from 'CCC-/C' to 'CC/C'.
• Investors don't appear to have received a coupon payment on Russian dollar-denominated Eurobonds on Wednesday.

S&P Global Ratings cut Russia's credit rating further into junk territory late Thursday, saying it now considers the country to be at high risk of defaulting on its debt payments.

The agency downgraded Russia's long-term sovereign credit rating to CC/C from CCC-/C for both foreign and local currency, bringing it two notches above default. That marks the third ratings cut since President Vladimir Putin's forces attacked Ukraine in late February.

"At this point, we consider that Russia's debt is highly vulnerable to nonpayment," S&P Global said in a statement.

S&P Global said it understands investors didn't get a coupon payment on the Russian government's dollar-denominated Eurobonds when it came due on Wednesday, thanks to sanctions-related technical difficulties. That prompted the credit downgrade, it said, while noting there is a 30-day grace period on the bonds.

"Although public statements by the Russian Ministry of Finance suggest to us that the government currently still attempts to transfer the payment to the bondholders, we think that debt service payments on Russia's Eurobonds due in the next few weeks may face similar technical difficulties," the agency said.

Tough Western sanctions on Russia in response to its war with Ukraine have cut off Russia's access to the global financial system and restricted access to its foreign reserves, threatening to wreck its economy.

This has made it difficult for the country to meet its debt payments, the agency said. At the same time, the Russian government's efforts to protect the ruble by clamping down on capital flight have contributed to its payment problems.

"All these have restricted the ability of nonresident domestic and foreign currency bondholders to receive interest, principal payments, or both on time," S&P Global said.

While there is an exemption in the sanctions for Russia to make debt service payments, this will expire on May 25. That could add further complications to the country's ability to make debt-related payments, according to S&P Global.

Russia met its obligation to pay $117 million in interest on dollar-denominated sovereign bonds due Wednesday, according to reports. Fitch Ratings had said the country could be in default if it attempted to pay in rubles instead of dollars.

Ratings agencies Moody's and Fitch Ratings have also downgraded Russia's credit rating, and Fitch has warned a Russian debt default is "imminent".

Russian companies and government owe about $150 billion to overseas investors, mostly denominated in foreign currencies like dollars and euros.

The last debt crisis in Russia in 1998 shook Wall Street, and if it defaults on foreign-currency interest payments as threatened, it would be the first such default since the aftermath of the Bolshevik revolution in 1918.

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