Western rating agencies will bargain with the Central Bank

A source in the financial market said that working in Russia the “big three” international credit rating agencies (S&P, Moody’s and Fitch Raitings) have not yet applied to Central Bank for accreditation. “The deadline for this expires in July 2017, but the time for filing had enough — more than a year,” says the source . Information about the fact that none of the members of the “big three” has not yet taken any action to enter into the register of agencies accredited by the Central Bank, was confirmed by a source close to the Bank of Russia. According to him, the inaction of the rating agencies due to the attempt of bargaining with the authorities about the change in the law “On the activities of credit rating agencies” rigid approach. If agreement fails, then the foreign agencies will have the option to register with the Central Bank as branches of foreign companies with the ability to assign only international rankings.

“If international agencies will remain in Russia only as subsidiaries, they will be able to assign ratings of Russian issuers, but they will not be recognized in Russia. These ratings will benefit foreign investors”, — explained the Director of Department of development of financial markets, the Central Bank Elena Tchaikovskaya. She also added that in this case, to use the ratings of Western agencies will not be able and the Moscow exchange, as all issues of securities are included in the listing based on the ratings on the national scale.

Such a long absence from international agencies, the Central Bank even in the status of branches may indicate the ongoing attempts of negotiations. But given the severity of their withdrawal from the market of the domestic rankings, with a chance to negotiate still remain, sources indicate . According to one of interlocutors , in the autumn of representatives of the Central Bank has proposed to extend the transition period for international agencies for another six months, however, the government and the Duma opposition.

To obtain accreditation with the Central Bank, all rating agencies must in accordance with the law “On the activities of credit rating agencies”, which came into force in July 2015. This is a required condition for activities for assigned credit ratings on the national scale. From 13 January 2017 ratings agencies that fail accreditation and are not included in the register of accredited agencies, will cease to be legitimate. This means that issuers with such ratings will not be able to place the paper on the Moscow stock exchange, and under them it will be impossible to get loans in the Bank, as the regulator will not include them in the Lombard list.

Russian risks

Consensus is not one of the interested Agency. According to Tchaikovsky, there is a risk that if foreign agencies will not have time to be accredited in the Central Bank, that it will affect the activities of many market participants, particularly pension funds, who will have to abandon the investment in many large companies. “According to our estimations, speech can go about 200-250 of the largest issuers, which have received ratings of “the big three”. To obtain a rating of the Russian Agency can they just do not have time”, — said the representative of one of the rating agencies. He points out that while the Central Bank has accredited only two agencies: ACRES and RAEX (Expert RA), but they can not cope with the workload if the issuers will begin mass applying for the assignment of the ratings in Russia in June-July. “As a result, this could adversely affect the volume of placements of bonds,” he said.

However, this applies only to new issues of bonds and shares. If you believe the words of the first Deputy Chairman of the Central Bank Sergey Shvetsov, the regulator is ready to make concessions to the “big three”, introducing so-called grandfather clause for already-quoted securities. “Market participants can hold securities which are rated “big three” or the ratings of Russian rating agencies, which have not been registered as long as these ratings will not be reappointed, and as long as these ratings will not decline. This rule is the “grandfather clause” — will not apply to new issues of securities, given that we have enough active issuers exert their activity”, — he said, speaking on December 20, REPO forum in Moscow (the citation on Reuters). Consider “grandfathering” clause of the Central Bank is planning in January. “The regulator, apparently, intended to smooth the transition to the new requirements to avoid such extreme measures as the forced sale of securities that have ceased to meet the requirements of rating level”, — said Sberbank CIB analyst Ekaterina Sidorova.

In Raitings Fitch and Moody’s on Wednesday, December 21, did not respond to a request , S&P representative said that the Agency plans to undergo registration at the Central Bank to continue its activities in Russia. “We will provide the required documentation in a timely manner,” he said. S&P indicates: “the Central Bank continues to develop a regulatory framework for credit rating agencies in Russia. We continue to support and assign ratings on a national scale and we hope that the regulatory regime will allow us to do it in the future.”

International risks

Risks of agencies is largely due to the sanctions against Russia. “The whole problem is that international agencies accept the situation when they can operate in Russia through branches, not obeying, in fact, Russian law. Otherwise they will not be able to withdraw the ratings if, for example, sanctions will be imposed in respect of new companies and banks”, — said Elena Chaikovskaya. In addition, according to her, the fact that the “big three” in no hurry to accredited in the Central Bank, is connected with the peculiarities of their business model. “In particular, our requirements in the Agency must be a certain number of analysts, their competence should be confirmed,” she said.

According to one of participants of the market if the S&P, Moody’s and Fitch Raitings will accept the rules of the CBA, then they will need at least double the staff. “This is a large expense that they don’t want to go. On the other hand, if the “big three” agree to work under Russian law, it could lose 90% of the customer base. In terms of sanctions and the crisis in the economy the vast majority of companies and banks places securities in the country and not in foreign markets”, — concluded the financier.