* Rising tension with West could damage investor sentiment
* Russian corporates, quasi-sovereigns seen most at risk
* Some impact on sentiment towards wider region
* Fitch watching other "frozen conflicts" in region
By Peter Apps
LONDON, August 26 Rising tension with the West
could damage foreign investor sentiment towards Russia, ratings
agency Fitch said on Tuesday, although it does not immediately
threaten Russia's sovereign rating.
But Fitch head of emerging European sovereigns Edward Parker
told Reuters conditions for Russian corporate and
quasi-sovereign borrowers may become more difficult in the
aftermath of its invasion of Georgia.
He said the fallout of the conflict may also affect
sentiment towards other Central European and ex-Soviet states
but that the oil and gas-rich country's vast foreign reserves
eased the risks to the Russian economy.
Fitch rates Russia as "BBB+" with a stable outlook.
"In terms of the cost of the conflict, the impact on the
economy is negligible," he told Reuters in a telephone
"We're not expecting to take a negative action with regards
to Russia's rating. The main potential impact on Russia is
through an impact on capital flows into the country... affecting
Russia recognized Georgia's breakaway regions of Abkhazia
and South Ossetia as independent states on Tuesday, setting it
on a collision course with the West. Russia's ambassador to NATO
compared the situation to 1914 when World War One was about to
Parker said Russian foreign exchange reserves saw a slight
fall last week but that it was too soon to say if the trend
"It's still very early days to assess the impact," he said.
"Given that Russia has $580 billion in foreign exchange
reserves, it has the ability to ride out weekly changes."
But he said some Russian corporate borrowers as well as
quasi-sovereigns -- firms seen almost indissolubly tied to the
state -- might face problems with foreign lenders.
"There are a significant number of corporates who are very
dependent on international capital markets," he said.
"There could be an impact on the Russian banking system as
Investor sentiment towards other regional economies was also
being affected, he said.
Ukraine is seen amongst the most exposed, with any fall in
foreign direct investment potentially making it harder to cover
their current account deficit.
Parker said there was already some impact on investor
sentiment towards the Baltic states as well as Central European
countries such as Poland, which has angered Russia by agreeing
to house a U.S. missile defence shield.
"We don't see any immediate impact -- it's more a potential
impact if Russia decides to take more aggressive action in due
course," Parker said. "But it is affecting investor sentiment."
He said Fitch was keeping a close eye on other "frozen
conflicts" in the region such as Moldova's Transdniestria region
-- which like Abkhazia and South Ossetia is home to Russian
peacekeepers -- as well as in Azerbaijan and Armenia.
Azerbaijan and Armenia remain locked in a territorial
dispute over the Nagorno-Karabakh region. Parker said Fitch did
not expect conflict in any of those regions, but if one did
occur it would be potentially negative for their credit ratings.
He said Russia's recognition of the two Georgian breakaway
regions did not significantly itself change the credit picture
for either country. Fitch downgraded Georgia to B+ with a
negative outlook at the start of the war.
"This has been predictable since the start of the conflict
earlier in the month and is within what we have factored into
the current credit rating," he said.