Fitch warns investors to brace for heavy losses on Russian debt as default looms

One of the world’s top credit rating agencies has told investors in Russian debt to brace for severe losses.

Fitch last night downgraded Moscow sovereign debt to a C rating, meaning the risk of a Russian default is “imminent”.

President Vladimir Putin’s decision to order all interest payments on sovereign government debt held by foreign investors in roubles has stepped up the likelihood of Russia failing to meet its liabilities.

The rouble has plunged to record lows against the dollar since the Kremlin sent troops into Ukraine, meaning investors holding dollar or euro-denominated Russian debt are highly likely to book heavy losses due to the dismal exchange rate.

Moscow’s retaliation to Western sanctions has “further undermined Russia’s willingness to service government debt,” Fitch said.

“The further ratcheting up of sanctions, and proposals that could limit trade in energy, increase the probability of a policy response by Russia that includes at least selective non-payment of its sovereign debt obligations,” the firm added.

An alliance of Western countries has locked top Russian banks out of the Swift payments system, hitting the health of Russia’s financial system.

A large proportion of Russia’s central bank’s dollar, euro and gold reserves – seen before the invasion as a means allowing Putin to protect the rouble and the Russian economy – have been frozen.

As a result, Russia’s economy has been plunged into turmoil, hamstringing its ability to meet its debt obligations.

The Moscow stock exchange has been shuttered since last Monday as authorities try to prevent a bottoming out in stock prices.

The central bank has also restricted interest payments in roubles to investors based outside of Russia.