08/17/1998 18:41:38 Fitch IBCA cuts ratings of eight Russian regions

(Press release provided by Fitch IBCA) NEW YORK, Aug 17 - Fitch IBCA, the international rating agency, has downgraded the long-term foreign currency ratings of eight Russian regions, listed below. The changes in the foreign currency ratings are as follows. All regions are placed on RatingAlert negative, with the exception of the Sakha Republic, which is reported to have defaulted. City of St Petersburg, Krasnoyarsk Krai, Leningrad Region, and Komi Republic: Long-term ratings from BB- to B-; short-term remains at B. Belgorod Oblast: Long-term rating from B+ to B-; Short-term remains at B. Kaliningrad Oblast and Moscow Oblast: Long-term rating from B+ to CCC; short-term from B to C. These downgrades reflect the poor financial situation of these governments, which makes default a real possibility. Sakha Republic (Yakutia): Long-term rating from B- to DDD; short-term from B to D. The government of Sakha's announced on August 12 that it was unable to repay republican bonds puts it into the default category. The agency is investigating the potential for recovery of outstanding amounts. These changes follow the agency's downgrading earlier today of the Russian Federation's long-term foreign curerncy rating from BB- to B- and its placement on RatingAlert negative. All regions (other than the Sakha Republic) are also on RatingAlert negative. The announcement of the 90-day moratorium on external debt payment is the main cause of concern. The agency is currently seeking clarification from the Ministry of Finance on whether the moratorium also includes municipal bonds. Fitch IBCA believes that the ongoing financial crisis of the Federation will have direct and indirect consequences on the Russian regions. The direct impact will be the regions' increased difficulty in raising funds necessary for financing new fiscal deficits as well as rolling over existing debt. The indirect impact is due to the consequences that the latest economic measures will have on the regions' economies. The measures announced by the Government of the Russian Federation and the support of the international community should help the market to reach a new equilibrium, provided the Russian Duma shows itself willing to support the measures despite their likely short-term social costs.