Why did Fitch downgrade 28 Russian natural resources companies?

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Fitch Downgraded 28 Russian Natural Resources Companies Due to Default Risk Stemming from Sanctions and a New Russian Decree

Fitch downgraded 28 Russian natural resources companies, including Gazprom, Lukoil, and Rusal, from a B rating to CC, indicating a probable default on payments. This action was primarily driven by a Russian decree issued on March 5 that allows companies to settle debts in rubles rather than foreign currency, a measure enacted in response to international sanctions targeting Russia for its invasion of Ukraine.
Russian Decree Creates Payment Barriers

A significant factor in the downgrade was the Russian government's decree on March 5, which permits companies to make payments in rubles to certain foreign entities. Fitch views this decree as potentially creating insurmountable obstacles for these companies in meeting their obligations on foreign- and local-currency debt to specific international creditors in a timely manner.
Escalating Sanctions Weaken Economic Environment

The ongoing escalation of international sanctions, including restrictions on energy trade such as the US and UK bans on Russian oil imports, further contributes to the increased probability of retaliatory policy responses from Russia. Fitch noted that these sanctions significantly weaken Russia's overall economy, thereby eroding the operating environment for its corporate sector.
Increased Probability of Default Implied by Ratings

The downgrade to CC signifies that Fitch considers some form of default on the companies' payments to be "probable." This rating reflects the heightened financial risks faced by these entities due to the complex interplay of sanctions and Russia's countermeasures, making it more challenging for them to access capital at manageable rates.

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Why did Fitch downgrade 28 Russian natural resources companies?

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