China is working on assigning a sovereign rating to Russia

China Chengxin Credit Rating Group (CCXI), China’s oldest rating agency with the largest share of the domestic market, held a series of meetings with representatives of the Bank of Russia and the Ministry of Finance on the issue of assigning a national credit rating to the Russian Federation. CCXI CEO Yan Yan told reporters about this during the signing of a memorandum on cooperation in the field of sustainable development with the Russian rating agency Expert RA, a Vedomosti correspondent reports.

To begin with, CCXI intends to clarify issues, including those related to the ongoing de-dollarization, for the methodology and criteria for assessing the Russian national sovereign rating, Yan explained. After receiving the information, CCXI will be able to assign a rating to Russia – this will take a certain period of time, he said. “We hope that this will happen as soon as possible,” he concluded.

Sovereign rating is a way to assess the ability of the state to fulfill its obligations in a timely and full manner. Most often, such an indicator is needed so that investors can assess the probability of a country defaulting when buying its government bonds. Representatives of foreign businesses also resort to these ratings, assessing the possibility of entering the market – the corporate parameters of some players establish that investment is possible in a country with a rating of at least a certain value.

Typically, business relies on the ratings of the “big three” – Standard and Poor’s (S&P), Moody’s and Fitch. The classification includes a number of parameters: total public debt, budget balance, risks. The highest rating (“AAA” by Fitch and S&P, “Aaa” by Moody’s) means the country’s full creditworthiness, lower ratings (“B-” by Fitch and S&P, “Caa1” by Moody’s) are awarded to states experiencing some difficulties with paying obligations, which complicates borrowing in foreign markets. Sovereign ratings below ‘BBB-‘ and ‘Baa3’ are considered non-investment or junk.

But after the sanctions, Fitch, S&P Global and Moody`s suspended work in Russia in the spring of 2022 and withdrew their ratings – sovereign and corporate. According to the Moody’s scale at that time, Russia’s rating was Baa3 – this is the first step of the investment category after the “junk”. According to the S&P and Fitch scales, the ratings were (ВВВ-) and ВВВ-, which corresponds to the lower level of investment grade.

In addition, under the fourth round of sanctions adopted by the EU countries on March 15, 2022, European agencies are prohibited from rating Russia and Russian companies, as well as from providing rating services to Russian clients.

CCXI is also working with Expert Ra on the issue of credit ratings in the ESG segment, primarily for green bonds, Yan said. Both agencies will bring the existing ratings “to a common denominator” in order to develop a common methodology in evaluating such products. According to CCXI, the total size of the Chinese green bond market in the green bond segment is $85 billion.

Expert Ra is ready to assist its Chinese colleagues in their interaction with Russian issuers, the regulator, the Ministry of Finance, which is interested in the further development of the public debt market not only in Russia, but also abroad,” said Marina Chekurova, CEO of the agency, during the meeting. This will allow domestic companies to “get closer” to the Chinese market and get the opportunity to borrow there, she concluded.