Moscow has announced that it would create a new credit rating industry. Mark Flemming-Willams, an expert at a private US analytical firm, is certain that Russian alternative rating agencies will succeed. Importantly, a domestic credit rating agency, RusRating, has been already operating in Russia. It is important for two main reasons.
“First, the credit rating industry essentially sets the tone for the investment management industry, in terms of deciding whether or not they're going to buy bonds and shares. The credit rating industry essentially decides whether or not a company is solvent and how likely it is to default. As a result, if a credit rating agency downgrades a stock, then the cost of obtaining debt for that company goes higher. The other reason why it's important, particularly for Russia, at the moment, 96% of credit ratings are done by three American agencies,” Mark Flemming-Willams explained.
Recently, Russia’s sovereign credit rating was downgraded to the junk status by Standard & Poor's and Moody's. Moreover, a lot of corporate credit ratings were downgraded as well. At the same time, the ratio of Russia’s public debt to GDP is only 13%, which is quite decent compared to other countries. However, considering corporate and bank bonds, the situation becomes a real problem. Here, the debt totals $500 billion, which is held mainly by Western investors. Lately, Russia has been turning to the East in search of other sources of funds.
“The Chinese fund management industry is projected to grow six times in the next five years. We've got a huge, growing amount of capital, which could be devoted to things like Russian bonds, which at the moment … look very cheap,” the expert noted. As more fund management money is arriving to Russia and China, rating agencies there will gain clout and global credibility.
