Moody's downgrades 95 Russian companies as IIF forecasts economy will shrink 15%

The country's economy has taken a severe hit from punitive western actions and the flight of foreign companies

A McDonald's restaurant in Moscow, opposite the Kremlin. Russia is considering nationalising the assets of foreign companies that have severed business ties with it. Reuters

Moody's Investors Service has downgraded the ratings of 95 non-financial Russian companies after western sanctions were imposed on the country's economy in response to its military offensive in Ukraine.

The baseline credit assessments of government-related issuers have also been cut, Moody’s said on Friday.

On Thursday, the Institute of International Finance (IIF) estimated that Russia's economy will shrink 15 per cent this year as it slides into a deep recession that will be twice as severe as the 2009 recession.

“The speed and severity of sanctions imposed on Russia after its invasion of Ukraine [are] remarkable. They have led to a drastic and unprecedented tightening in financial condition,” the IIF said.

“Further escalation of the war may bring more boycotts of Russian energy, which would drastically impair Russia’s ability to import goods and services, deepening the recession. Our baseline forecast assumes continued fighting, but not a sharp escalation in the conflict.”

Moody's said its rating action on companies follows its downgrade of Russia's sovereign rating deeper into “junk”, or non-investment grade territory. The agency cut Russia's rating twice within two weeks and forecasts that the economy will contract 7 per cent in 2022.

Sony's game division and Nintendo said they have suspended shipments of software and hardware to Russia. Nintendo said it is suspending shipping all products to Russia "for the foreseeable future... due to considerable volatility surrounding the logistics of shipping and distributing physical goods." AFP

Rio Tinto said it "is in the process of terminating all commercial relationships it has with any Russian business". It has an alumina joint venture with Moscow-based United Rusal International. Reuters

McDonald's is temporarily closing all 847 of its restaurants in Russia. AFP

Starbucks is suspending all business activity in Russia, including shipments of its products and cafes run by licencees. AFP

Coca-Cola is suspending sales in Russia. Coca-Cola said its business in Russia and Ukraine contributed about 1 to 2 per cent of the company's net operating revenue in 2021. Reuters

PepsiCo is suspending sales of its sodas in Russia. It said it would continue to sell daily essentials, such as milk and other dairy offerings, baby formula and baby food, in Russia. Getty Images / AFP

Yum Brands, behind KFC and Pizza Hut, also said it was suspending investment in Russia. Reuters

Toyota is halting production at its plant in St Petersburg, and will halt vehicle shipments to Russia. Reuters

Ikea said it would suspend its activities in Russia and Belarus, affecting nearly 15,000 employees, 17 stores and three production sites. AFP

Honda will stop exports of cars and motorcycles to Russia. EPA

Jaguar Land Rover has paused the delivery of its cars to Russia due to "trading challenges".

Airbus is suspending sale of parts and support services to airline customers in Russia. Reuters

Boeing has suspended major operations in Moscow and temporarily closed its office in Kyiv. It is also suspending parts, maintenance and technical support services for Russian airlines. Reuters

Nike has made merchandise purchases on its website and app unavailable in Russia as it cannot guarantee delivery of goods to customers in the country, an update on the sportswear maker's website showed. Bloomberg

German sportswear company Puma has stopped deliveries to Russia, but its 100 stores are open. Getty Images

Shell is to exit all its Russian operations, including a major liquefied natural gas plant. The company also plans to end its involvement in the Nord Stream II gas pipeline from Russia to Germany. PA

BP is exiting its 19.75 per cent shareholding in Russian oil giant Rosneft after pressure from the UK government. BP has operated in Russia for more than 30 years. Reuters

ExxonMobil will cease operations in Russia and refrain from making new investments in the country. It holds a 30 per cent stake, alongside Rosneft, Japan's Sodeco and India's ONGC Videsh, in the Sakhalin Island oil and gas fields in Russia’s far east. Its business in the country is valued at more than $4 billion. AFP

Eni said it would withdraw from the Blue Stream gas pipeline linking Russia to Turkey, in which it has a 50 per cent stake. The company controls the gas pipeline -- which links the two countries via the Black Sea -- equally with Russian energy giant Gazprom. Reuters

British Gas owner Centrica has said it will exit gas supply agreements with its Russian counterparts, including Gazprom. Centrica said it currently has a medium-term contract with Gazprom Marketing and Trading, the Russian energy company's UK entity, through which gas can be sourced from the open market. Reuters

Norwegian energy group Equinor said it will start the process of divesting from its joint ventures in Russia. Reuters

HSBC said it was starting to wind down relations with a host of Russian banks including the second-largest, VTB, one of those targeted by sanctions, a memo seen by Reuters showed. AFP

Volkswagen suspended deliveries of cars to dealers in Russia. 'Deliveries are to resume as soon as the effects of the sanctions imposed by the European Union and the United States have been clarified', a VW representative said. AP

Swedish automaker Volvo Cars said it would suspend car shipments to the Russian market until further notice, becoming the first international car maker to do so. Supplied

GM said it would suspend all vehicle exports to Russia until further notice. The Detroit company does not have plants in Russia, only sells about 3,000 vehicles annually in the country and has limited supply-chain exposure. AFP

Danish shipping giant Maersk said that it would stop taking new non-essential orders to and from Russia, owing to sanctions imposed over Moscow's invasion of Ukraine. AFP

Singapore-headquartered container shipping company Ocean Network Express has suspended bookings to and from Russia. Reuters

AerCap Holdings, the world's biggest plane lessor with about 5 per cent of its fleet leased to Russian airlines, said it will stop trading with Russian customers. Reuters

US-based United Parcel Service said it is halting delivery services to Russia and Ukraine. Bloomberg

FedEx also said it is temporarily suspending inbound and outbound services to Ukraine and inbound services to Russia until further notice. AP

Microsoft said it would remove Russian state-owned media outlet RT's mobile apps from its Windows App store and ban ads on Russian state-sponsored media. Reuters

Google has barred RT and other Russian channels from receiving money for ads on websites, apps and YouTube videos. Reuters

German heavy-goods vehicle group Daimler Truck has said it will cease its co-operation with Russian lorry-maker Kamaz. AFP

Motorcycle maker Harley-Davidson has suspended shipments of its bikes to Russia. Pictured, Russian President Vladimir Putin. Reuters

Facebook owner Meta Platforms has restricted access to accounts run by Sputnik and RT in the EU. Reuters

Apple has paused all product sales and limited the functionality of other services in Russia. Reuters

“While liquidity alone was not the main driver for these actions, the intensifying pressures on the domestic banking system and rising risk of international banks distancing themselves from Russian issuers may threaten the reliability of previously committed liquidity lines,” Moody’s said.

“We will continue to monitor issuer-specific liquidity and issuers' own responses to this changing environment, with liquidity risk a possible driver of future rating actions.”

The rating action was also driven by Russia's March 5 presidential decree that requires non-resident investors holding foreign currency-denominated sovereign debt to be repaid in local currency.

“If such a condition were applied to corporate debt and be contrary to the terms of an indenture, this could be considered a default if it resulted in a diminished payment relative to the original promise,” the rating agency said.

On March 6, Moody’s slashed Russia’s long-term issuer and senior unsecured debt ratings to “Ca”, from “B3", with a negative outlook. The downgrade came after the February 25 slashing of the country's rating.

The decision was prompted by the Russian central bank's capital control measures put in place after sanctions were imposed on the country by the US, Europe and other countries.

Moscow's capital control measures are expected to restrict cross-border payments, including debt service on government bonds, the rating agency said at the time.

This satellite image provided by Maxar Technologies shows destroyed and burning warehouse buildings in Stoyanka, Ukraine, in the western Kyiv region, during the Russian invasion. AP

Children shelter in a metro station in Kharkiv. Moscow said on March 10, 2022, that it will open daily humanitarian corridors to allow civilians fleeing fighting in Ukraine to reach Russian territory, despite Kyiv insisting that no evacuation routes should lead to Russia. AFP

Russian President Vladimir Putin during a videoconference meeting with government members at the Kremlin in Moscow. The meeting focuses on minimising the effects of sanctions on the Russian economy. Russian troops entered Ukraine on February 24, prompting the country's president to declare martial law and triggering a series of severe economic sanctions imposed by western countries. EPA

Rescuers work among remains of buildings damaged by an air strike in Dnipro, Ukraine, as Russia's attack on the country continues. Reuters

Members of the National Guard of Ukraine, Oleksandr and Olena, listen to a priest at their wedding in Ukraine. Reuters

People fleeing Russia's invasion of Ukraine warm up by a fire near the train station in Lviv, Ukraine. Reuters

Russian forces rolled their armoured vehicles up to the northeastern edge of Kyiv, edging closer in their attempts to encircle the Ukrainian capital. AFP

A woman covers herself with a blanket near a damaged fire truck after shelling in Mariupol, Ukraine. AP Photo

A Ukrainian soldier hides from a helicopter air strike near Demydiv, Ukraine. Reuters

Ukrainian soldiers walk past a monument of the city founder Duke de Richelieu, covered with sand bags for protection, in Odessa, Ukraine. Reuters

Russian Foreign Minister Sergey Lavrov, left, Turkish Foreign Minister Mevlut Cavusoglu, centre, and Ukranian Foreign Minister Dmytro Kuleba. EPA

Russian Foreign Minister Sergey Lavrov in talks with Ukrainian counterpart Dmytro Kuleba during a tripartite meeting chaired by Turkish Foreign Minister Mevlut Cavusoglu, in Antalya, Turkey. AP

Russian Foreign Ministry spokeswoman Maria Zakharova speaks to the media as the foreign ministers of Ukraine, Russia and Turkey hold talks in Antalya, 15 days after Russia launched a military invasion on Ukraine. AFP

A Ukrainian serviceman says goodbye to his girlfriend before departing in the direction of Kyiv at the central train station in the western Ukrainian city of Lviv. AFP

Valerii Sushkevych, president of the Ukraine National Paralympic Committee, and the Ukraine delegation raise their fists and pose with a banner at the Beijing 2022 Winter Paralympic Games. Reuters

A member of the Ukrainian team cries during a moment of silence at the Zhangjiakou athletes village during the Beijing 2022 Winter Paralympic Games. AFP

Turkish Foreign Minister Mevlut Cavusoglu, right, and Ukraine Foreign Minister Dmytro Kubela, second left, in Antalya, Turkey. AFP

A man is supported after crossing the Irpin river while fleeing the town of Irpin, Ukraine. AP

People are helped out of a damaged children's hospital following a Russian air strike in the southeastern city of Mariupol, Ukraine. AFP

A man rides a bicycle in front of an apartment building that was damaged by shelling in Mariupol. AP

A woman carries two babies after arriving at a triage point in Kyiv, Ukraine. AP

A man hugs an elderly woman after crossing a damaged bridge as they flee from the frontline town of Irpin, near the Ukrainian capital of Kyiv. EPA

Local residents cook at a makeshift camp next to a checkpoint in Kyiv. EPA

Ukrainian men chop wood at a makeshift camp next to a checkpoint in Kyiv. EPA

A member of the Territorial Defence Forces learns how to use a Javelin missile during a training session in Kyiv. EPA

Members of the Territorial Defence Forces learn how to give first aid during the training session. EPA

A woman rescued from the outskirts of Kyiv holds a plate of food after arriving at a triage point in the Ukrainian capital. AP

A woman cries after arriving at the triage point in Kyiv. AP

Civilian vehicles drive past a destroyed Russian tank as they leave Irpin. AP

Ukrainian servicemen stand in a foxhole in Irpin. AP

People gather on a platform to board a train leaving Odesa after the US said Russian troops are making preparations to attack the city. AFP

A Ukrainian woman looks for food in a bin in Odesa's city centre. AFP

Ukrainian servicemen look towards Russian positions outside the city of Brovary, east of Kyiv. AFP

A man walks past a shelled house at the village of Velyka Dymerka, east of Kyiv. AFP

A Ukrainian serviceman stands at a check point in the vilage of Velyka Dymerka east of Kyiv. AFP

A Ukrainian woman plays with her child in a temporary refugee shelter in Przemysl, Poland. Reuters

A woman waits outside a maternity and children's hospital damaged by shelling in Mariupol, Ukraine. AP

A pregnant woman leaves the hospital after she was wounded when it was bombed. AP

A woman waits outside the damaged hospital in Mariupol. AP

A man wounded by shelling in Mariupol. AP

A car burns after the destruction of the children's hospital in Mariupol. Reuters

A mortuary worker wheels a stretcher used to move dead bodies before they are buried on the outskirts of Mariupol. AP

Russia’s economy has taken a massive hit after the US and its allies took punitive actions against Moscow after its military offensive in Ukraine. Russian companies and oligarchs in President Vladimir Putin's inner circle have put under sanctions and their assets frozen by western countries.

Many western companies have exited or temporarily suspended operations in Russia. Moscow is now considering nationalising the assets of foreign companies that have severed business ties.

Such a move will pile more pressure on its economy and is likely to deter future foreign investment.

The US and UK have banned the import of Russian crude while Europe, which imports more than 40 per cent of its natural gas and 30 per cent of its oil from Russia, has pledged to reduce its reliance on Moscow for its energy needs.

The International Energy Agency has tabled a 10-point initiative for the EU to reduce its reliance on Russian natural gas.

The rating actions on the affected companies are a “direct consequence” of Russia’s sovereign rating and reflect Moody's view that ratings of Russian companies are constrained by the country’s “Caa2" foreign-currency ceiling.

“The negative outlooks, which are aligned with the sovereign outlook, reflect the severe risks to Russia's macroeconomic stability posed by the imposition of severe and co-ordinated sanctions and the financial ramifications from central bank capital controls and delays to sovereign debt repayments,” Moody’s said.

“Negative actions could be driven by further stress on Russia or a lowering of the ceiling, and also by issuer-specific weaknesses such as business disruptions, liquidity stresses, currency mismatches or expectations of debt-restructuring arrangements.”

The spillover effects of the conflict between Russia and Ukraine, which account for 29 per cent of the world's wheat, should hit trade, mostly in Eastern Europe, and affect commodity importers such as Turkey and Egypt because of higher oil and wheat prices, according to the IIF.

“A sharp escalation of the conflict will cause a broad-based pull-back in emerging markets capital flows, such that nowhere is immune. Such a scenario would see a flight to safety into the US dollar and potential market dislocations. The trajectory of the conflict is therefore all-important for markets,” IIF said.

Every $10 rise in oil prices will widen Turkey’s current account deficit in 2022 by 0.3 percentage points, raising its dependence on foreign capital inflows at a time when global risk appetite is unsettled, the IIF said.

A $50 rise in wheat prices per metric tonne — also a 10 per cent rise approximately — boosts the current account deficit of Egypt by 0.2 per cent of GDP.

Oil prices hit a 14-year high this week, with international benchmark Brent nearly touching $140 a barrel. Prices have retreated in the past two days but remain above $100 a barrel.

“A sharp escalation in the conflict will likely see a flight to safety and indiscriminate capital outflows from emerging markets. In that case, there may be nowhere to hide,” the IIF said.