EthiFinance Ratings comments on the potential impacts of the armed conflict between Ukraine and Russia on its credit ratings


Credit rating agency EthiFinance Ratings (formerly Qivalio Ratings and Axesor Ratings) is currently assessing the potential impacts of the armed conflict between Ukraine and Russia on its ratings.

Two weeks ago, a new armed conflict emerged on the European continent, leaving the world economy with new uncertainties in addition to the ones deriving from two years of Covid-19. As a result of the conflict, stringent sanctions have been imposed in relation to the Russian economy. Once again, supply chains are being disrupted, raw materials prices are soaring and most companies are faced with the challenges of having to protect their employees in affected countries while limiting collateral damage on their everyday business.

EthiFinance Ratings has classified impacts into five categories: ‘international sanctions impacts’, ‘presence in Russia/Ukraine’, ‘energy impacts’, ‘supply chain impacts’, and ‘raw materials impacts’.

‘International sanctions impacts’ concern companies which are prevented from selling or doing business in and with Russia because of international sanctions.

‘Presence in Russia/Ukraine’ concern companies with employees in Ukraine, whose protection is a number one priority for businesses. It also concerns companies with subsidiaries either in Ukraine or in Russia, which may cease operations or work at a slower pace because of the conflict in Ukraine or a recession in Russia, leading to potential direct impacts on revenues and profitability, or the value or control of the assets.

‘Energy impacts’ concern companies which are highly energy-consuming, for instance airlines which have already been suffering from two years of pandemic, and which may suffer from the current energy prices, precisely oil & gas, leading to another significant deterioration in credit metrics.

‘Supply chain impacts’ concern companies which depend significantly on suppliers of raw material based either in Ukraine or in Russia, and which are being forced to stop production because of various shortages in supply. The automotive industry is notably affected by these issues and some car makers and suppliers have already announced some production halts.

‘Raw materials impacts’ concern companies which have a high exposure to raw materials prices, especially metal or agricultural raw materials. The entire food industry is at risk as it may not be able to fully pass on the price increases to the final customer thereby leading to a drop in profitability and potential adverse impacts on credit metrics.

We have made a high-level review of our solicited and unsolicited rating coverage using the above classification and have concluded that 9 companies need close surveillance due to exposure to a mix of the above factors. These companies are operating in the following sectors: Automotive suppliers, Steel /Copper / Aluminium producers, Building materials (tile manufacturers), Agricultural products, Retailers and Non-integrated Electricity suppliers in Spain. There is however no rated entity with a large presence in Ukraine/Russia (over 10% of turnover) or exposure to sanctions in our coverage.

Over the next few weeks, EthiFinance Ratings will continue to monitor the situation and exchange views with potentially impacted companies. Ratings actions may be taken if material impacts arise during the course of our review.