Press release “to clarify the approaches to the formation of the Lombard list of the Bank of Russia”, the Central Bank published on Friday, April 14. “Since July 14, 2017 for inclusion in the Lombard list of bonds of constituent entities of the Russian Federation and municipal entities, as well as bonds of legal entities — residents of the Russian Federation… will be required to possess… credit rating no lower than BBB (EN), rated by credit rating Agency of ACRE,” — said in a press release.
Previously it was used by the Russian divisions of the “big three” global rating agencies: S&P Global Ratings, Fitch Ratings and Moody’s Investors Service. The ratings of Russian agencies, the Central Bank still for these purposes, ignored.
For inclusion in the Lombard list of securities of foreign issuers, the Central Bank, according to Friday’s press release, will continue to make global ratings of the “big three”, but from July 14 to tighten the requirements for the minimum rating level for inclusion in the Lombard list — from the current level of B+/B1 to BB-/Ba3, depending on the Agency.
“All issues of bonds included in the Lombard list, as of July 14, 2017, preserved in the Lombard list, prior to maturity,” reads a press release of the regulator.
The reason for the change is the failure of the “big three” from issuing domestic ratings and the need for their replacement in the regulatory documents of the Central Bank. Earlier, the Bank of Russia has reported that pension funds NPF can keep also only in banks with a rating of an ACRE. Thus, although the Central Bank has now accredited two Russian rating agencies (except for the AKRA’s “Expert RA”), the most important decisions — pension funds and the Lombard list of the Bank of Russia is ready to accept on the basis of only one of them.
However, in the future, the Bank of Russia “may consider use in forming the Lombard list of the credit ratings of other credit rating agencies”,-stated in a press release.
The Lombard list of the Central Bank — a list of securities that the Bank of Russia is ready to accept as collateral when providing loans to commercial banks. It is approved by the Board of Directors of the Central Bank. The presence of securities in the Lombard list, and now have at him (or Issuer) of the rating of an ACRE is extremely important for issuers. This increases the liquidity of bonds and the demand for them from investors. If it’s the banks, they are unable to direct refinancing of Bank of Russia under such securities. Other investors in the presence of the specified rating easier to obtain under such securities Bank financing.
The reaction of the competitors
“The use of ratings of Russian agencies for inclusion of securities in the Lombard list of the Central Bank — a landmark decision for the market, in fact, indicate a recognition of the quality and credibility of the Central Bank of the Russian agencies in the key for the regulator the question of refinancing”, — said the head of ACRE Ekaterina Trofimova.
However, a rival Russian Agency “Expert RA” does not lose hope to catch up positions. “The decision of what rating agencies and the level used for inclusion of securities in the Lombard list of the Central Bank, adopted by Board of Directors of the Bank of Russia, and he now leads work to assess the adequacy of our new methodology of rating”, — said the President of “Expert RA” Dmitry Grishankov. According to him, the process goes pretty quickly and the “Expert RA” expect that they will be able to convince the regulator of the quality of their methodology and in the coming weeks to get a positive conclusion.
“The presence of at least two agencies whose ratings are used for these purposes, would make the situation more objective from the point of view of competition”, — said Grishankov.
However, the Central Bank is not ready to unconditionally believe and the rating of an ACRE. As stated in the press release of the regulator, “in addition to the presence of issues (issuers) of securities specified credit rating ACRES in the decision about inclusion of securities in the Lombard list will be considered by the Bank of Russia assessment of the credit quality of securities (credit issuers), the conditions of their placement and circulation, as well as other essential circumstances.” Thus, the quality of the papers after ACRE, the Central Bank intends to double-check yourself.
The value for the market
In General, the Central Bank in the conditions of surplus of liquidity in the market is working on a gradual reduction of the refinancing of banks against securities from the Lombard list — this means that issuers, in principle, it is harder to get into the Lombard list, according to market participants. So, the requirements for international rankings are becoming tougher is not the first time lately. In July 2016, the Central Bank (then used for inclusion of securities in the Lombard list of the ratings of the “big three”) have already raised the minimum requirements from B-/B3 to the current B+/B1 depending on the Agency, remind the representatives of the rating agencies.
The transition on the ratings of an ACRE could make a separate contribution to this. “Set the rating level BBB (EN) from the ACRE is quite high based on it in the Lombard list can get a little less than half of the holders of the ratings of ACRE, which in the future may reduce the number of issues of securities in the Lombard list, about a quarter,” says a source familiar with the situation. The current trigger level for the rating was softer. “It’s hard to predict how the situation will develop, I can only say that now the criterion of B+ minimum rating level corresponds to about 60% of the total ratings from S&P,” says the Deputy Director on Bank ratings S&P Sergey Voronenko.
“Some of the aforementioned requirements may be cut off from the Lombard list, in my opinion, no more than 10% of the total number of new releases, mostly by banks and technology companies”, — said the Director of debt capital markets at ROSBANK Anton Kiryukhin. According to his estimates, in terms of the volume of money we are talking about slightly smaller proportion because the largest volumes are issued by major companies with a high rating.
Considering that while in the Lombard list will be accessible only with a rating of an ACRE, a number of issuers have entered into contracts to ratings from other agencies may face risks and does not get into the Lombard list in the coming year. According to information recently and for the next year contracts with the ACRES entered into a number of sub-Federal issuers, for example the Novgorod oblast. Information about this is contained in a Single information system in the sphere of public procurement. Considering this is a budget structure to Fund new contracts — now with AKRA — they can’t afford. Practically, if the ratings of “Expert RA”, the Central Bank and will not accept for inclusion of securities in the Lombard list in the coming year, this means less interest in their offerings from the market.
“Indeed, the agreements ratings are usually for a year, and that was done listed issuers are not subject to termination without a very good reason, but we expect approval in the near future, the Central Bank of our methodology and a possible imminent adoption by the regulator of our ratings for inclusion of securities in the Lombard list,” says Grishankov.
Operating conditions can be mitigated due to the fact that until July 14, another rating Agency may obtain approval of the Central Bank of his methodology, I agree Anton Kiryukhin. “But to market a big plus that the new requirements for Lombard list do not relate to the old issues, otherwise the situation for the issuers would have been much harder”, — he concluded.