The risk of sovereign interference remains relevant, albeit not uniform, in assessing the ratings on future flow transactions in The Russian Federation (foreign currency BB+/Stable/B; local currency BBB-/Stable/A-3), says a report issued on Dec. 1, 2004, by Standard & Poor's Ratings Services. The report defines sovereign interference in the Russian context, and assesses its bearing on export and financial future flow transactions in the country.
"The progress that Russia has made in moving toward a market-oriented economy is mitigated by the government's tendency to revert to less transparent and orthodox political and economic practices," said Standard & Poor's credit analyst Kristel Richard. "Moreover, new regulations are not necessarily transparent, and their enforcement may be unpredictable and politicized."
In 2004, Standard & Poor's assigned an investment grade 'BBB-' rating to the export future flow transaction backed by a loan from OAO Gazprom (corporate credit rating BB-/Watch Developing/--; see postsale report "New Issue: Gazprom International S.A.," published on RatingsDirect on Nov. 12, 2004). By contrast with Gazprom's case, however, the risk of sovereign interference remains a key hurdle for oil exporters located in The Russian Federation. The ongoing government intervention in the affairs of the country's second-largest hydrocarbons exporter, OAO NK Yukos (CC/Watch Neg/--), highlights the significant risk of sovereign interference in corporates exploiting the country's strategic natural resources.
Meanwhile, the risk of sovereign interference in corporates not exploiting strategic natural resources will be determined on a case-by-case basis. This is due to the absence of a clear political stance toward nonstrategic assets, which renders generalizations on the risk of sovereign interference impossible.
With regard to financial future flow transactions, in general, the risk of sovereign interference is viewed as lower for the largest public sector banks because of their systemic importance to the Russian economy and their public mandate. For the foreseeable future, the risk of sovereign interference in the smaller Russian banks, publicly or privately owned, is likely to remain at least on a par with the risk of The Russian Federation defaulting on its foreign currency debt.
"As more transactions come to market, we will analyze them on a case-by-case basis," said Ms. Richard. "In addition, we will continue to monitor the Russian market and legal system to identify any changes in the numerous variables relevant to these transaction ratings," she concluded.
The report, entitled "Future Flow Structured Finance Transactions in The Russian Federation: A Risky Business?" was published on Dec. 1, 2004, and is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. Ratings information can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find Ratings, then Credit Ratings Search. Alternatively, call one of the following Standard & Poor's numbers: London Ratings Desk (44) 20-7176-7400; London Press Office Hotline (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5916; or Moscow (7) 095-783-4017. Members of the media may also contact the European Press Office via e-mail on: media_europe@standardandpoors.com.