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Reuters: Russian steel, mining firms credit ratings lag -S&P

EXTRACT: Doing business in Russia is risky.. An example is the giant Sakhalin-2 oil and gas project, led by Shell, which has come under pressure from the Russian authorities since the Anglo-Dutch oil major said costs would double to $22 billion.

THE ARTICLE

LONDON, Nov 29 (Reuters) – Doing business in Russia is risky and a major reason why steel and mining company ratings in the country lag those of the government, rating agency Standard & Poor’s said on Wednesday.

“The key constraint in Russia is country risk, which is not the same as sovereign risk,” said Moscow-based Elena Anankina, a director at S&P.

“It’s the risk of doing business in the country versus the risk of sovereign default. The business environment is getting more risky despite the sovereign upgrade.”

Last year S&P raised Russia’s long-term foreign currency sovereign credit rating a step further to investment grade ‘BBB’ from ‘BBB-‘ citing improvements in government finances and the country’s debt reduction programme.

But in Russia’s steel and mining sector the highest rated company is Norilsk Nickel (GMKN.RTS: Quote, Profile, Research), the world’s largest nickel and palladium producer, with ‘BBB-‘.

Most others such as SUAL, Russia’s second largest aluminium firm, and steelmaker Evraz Group (HK1q.L: Quote, Profile, Research) are on ‘BB-‘.

Anankin said the main problem was weak institutions, uncertain rules and regulations and weak corporate governance.

“(There is) an overdependence on personalities and vested interest groups … (But) government involvement in the metals sector has been lower than in oil and gas, for now.”

An example is the giant Sakhalin-2 oil and gas project, led by Shell, which has come under pressure from the Russian authorities since the Anglo-Dutch oil major said costs would double to $22 billion.

© Reuters 2006. All Rights Reserved.

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