Agencies lined up for clients – Newspaper Kommersant No. 56 (7501) dated 04/03/2023

Russian rating agencies, having lost all foreign competitors in 2022, could not take their place. The total number of customers grew by only 5%, while revenue grew even less – by 3.9%. Worst of all is the situation of the NKR: despite the expansion of the use of its ratings, the agency’s revenue fell by 11.4%. In 2023, agencies hope to increase the number of clients mainly due to newcomers entering the debt market, but experts believe that competition between players will only intensify.

Kommersant studied the reports of four Russian rating agencies for 2022. Judging by the documents, their total revenue grew by 3.9%, to almost 1.3 billion rubles. In particular, Expert RA showed an increase of 5.6%, to 648.1 million rubles, ACRA – by 3%, to 541.1 million rubles, NRA – by 20.7%, to 40.4 million rub. The fall was observed only in the NKR – by 11.4%, to 67.7 million rubles. Moreover, this happened against the background of the expansion of the use of its ratings in 2022. From mid-2022, the Central Bank began to take into account the ratings of the NKR and NRA to regulate the activities of the central counterparty and the central depository, operators of financial platforms. The NCR clarified that the main growth in the client base occurred at the end of the year, “since revenue is recognized evenly throughout the year, this increase will be reflected in the 2023 figures.”

In general, the number of clients of Russian agencies, despite the withdrawal of all foreign competitors from the market after the outbreak of hostilities in Ukraine, grew, according to the Central Bank, by only 5%, to 757 organizations. ACRA received the most, showing an increase of 8%, while Expert RA had “insignificant growth”. The Central Bank noted that in connection with the closure of information on the financial market and the withdrawal of ratings of Russian companies by the Big Three agencies (S&P, Fitch, Moody`s; see “Kommersant” dated May 16, 2022) the ratings of Russian agencies “have become the main publicly available indicator of credit risk”. However, this has not yet resulted in a real expansion of the business.

Nevertheless, market participants are optimistic. Expert RA expects “a slight increase in revenue” at the end of the year, primarily seeing the potential in companies that have not previously entered the public debt market, says Marina Chekurova, general director of the agency.

“We see demand from new companies from the beginning of 2023, taking into account the opened placement window in the fourth quarter of 2022, when the volumes were at their maximum – more than 2 trillion rubles. per quarter,” confirms ACRA CEO Mikhail Sukhov. He expects to enter the market a few dozen companies that did not have ratings on the national scale, but worked with the Big Three. “The situation with rates in the future seems to be uncertain, and it is better to enter the market this year under clear and established conditions,” Ms. Chekurova believes.

The rating market has been “in some kind of stagnation” for two years now, says Pavel Samiev, General Director of Businessdrome. According to him, the average bill for the assignment and maintenance of the rating is about 1 million rubles. As Mr. Sukhov notes, the cost of services “tends to increase under the influence of general inflation, although it lags significantly behind its pace due to the fact that contracts are of a long-term nature.” According to ACRA, the annual revenue of the Russian rating industry is four to five times less than the cost of services of the Big Three that left the market.

A Kommersant source close to the Central Bank does not consider the agency’s results to be impressive.

In contrast to other areas of business where the exit of foreign competitors has led to strong growth, “this has not happened in the ratings industry,” he admits: “Agency competition is fierce. This is also an important signal for the Central Bank and the Ministry of Finance, as the long-term commercial viability of the rating industry remains in question.”

Competition will continue to put pressure on prices: pulling customers over in the absence of new sources of growth can unleash a dumping spiral, Kommersant’s interlocutor fears: “The main thing is to prevent customers from being lured away by “rating arbitrage”, when the rating is put higher than that of the competitor. According to him, clients have “always been sensitive” to this method.

The further dynamics of the agencies’ revenues will greatly depend on the dynamics of their clients’ securities issues, since there is a commission for each new issue within the assigned rating, as well as changes in regulatory requirements, Kommersant’s interlocutor notes. Mr. Samiev adds that “in the absence of sources of quantitative growth, agencies are left to share the pie that they have, so the struggle for clients is escalating.”

Olga Sherunkova