Is Armenia’s state governance a source of distrust?

Moody’s has downgraded the rating of CJSC “Electric Networks of Armenia” (ENA). The agency began reviewing the company’s rating following the decision to nationalize ENA and the processes associated with it.

Specifically, the agency downgraded the company’s long-term corporate rating (CFR) from Ba2 to Ba3 and the probability of default rating (PDR) from Ba2-PD to Ba3-PD. The rating outlook was changed from “stable” to “negative,” and the company’s credit impact score was lowered from CIS-2 to CIS-3.

In general, credit rating agencies play a special role in the modern financial world, providing rating assessments to countries and organizations. Global financial players rely on these assessments to evaluate risks and make decisions. Agencies obtain necessary data in two main ways: through official statistics or company reports, and by studying evaluations, analytical materials, and research available in expert circles.

The activity intensified after the 2008 financial crisis. The “rating culture” originated in the United States. Although there are many rating agencies worldwide today, the three most authoritative are S&P, Moody’s, and Fitch Ratings.

Of course, there are ongoing discussions in expert circles about the reliability of these assessments. There are objective opinions regarding the presence of political context, but we believe this pertains to global issues.

Regarding Moody’s downgrade of ENA’s rating, let’s note that (as stated in the agency’s report) the outlook was changed from “stable” to “negative” due to uncertainty related to the company’s corporate governance. The downgrade in the credit impact score was driven by uncertainty surrounding the consequences of recent developments in corporate governance. These developments refer to well-known events surrounding ENA, initiated and implemented by the current government of the Republic of Armenia.

Therefore, between the lines of this wording, the agency expresses distrust toward the actions taken by the authorities—both in terms of their effectiveness and their economic and social justification, as well as their responsiveness and more. In other words, to put it plainly, the policy of the current Armenian government, according to the agency’s assessment, is a source of distrust.