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Russia receives downgrade

Moody’s Investors Service announced last week that it was downgrading the outlook for the government of Russia’s debt rating to Baa2 from Baa1, putting Russia’s rating just one notch above a junk rating. Moody’s also maintains a negative outlook for the future of Russia’s ratings.

According to the release put out by Moody’s, the main reasons for the downgrade and negative outlook are Russia’s increasingly subdued medium-term growth prospects, exacerbated by the Ukraine crisis and the international sanctions associated with it, as well as the gradual erosion of the country’s foreign-exchange buffers due to capital flight.

In a related decision, Moody’s has also lowered Russia’s long-term country ceilings for local and foreign-currency debt and for local currency deposits by one notch to A2 from A3 and its short-term country ceilings for foreign-currency debt to P-2 from P-1. The long-term country ceiling for foreign-currency bank deposits was lowered to Baa2 from Baa1, while the short-term country ceiling for foreign currency bank deposits was unchanged at P-2.

Analysts unsure if Mexico may follow suit

Low oil prices have also put Mexico at risk of receiving a credit downgrade in the near future. While cuts are not necessarily imminent, BNP Paribas SA’s Nader Nazmi says the country is at risk, reports Bloomberg.  Mexico’s debt levels are in danger of skyrocketing, says the economist, because its economy is heavily dependent on oil revenue.

While Nazmi maintains a concerned outlook for Mexico’s future, other analysts are less pessimistic. Experts at both Moody’s and Fitch said that price shocks from oil will be largely mitigated because Mexico has hedged its oil through 2016. Shelly Shetty, head of Latin American sovereigns at Fitch said, “Low oil prices are a negative shock for fiscal accounts of Mexico. However, the near-term vulnerability for federal-government revenues is mitigated by the execution of the oil hedges.”

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.