S&P raises Ukraine's ratings to 'B-/B' from 'SD/D', outlook - "stable"
KYIV. Oct 20 (Interfax) - Standard & Poor's Ratings Services on October 19, 2015, raised its long- and short-term foreign currency sovereign credit ratings on Ukraine to 'B-/B' from 'SD/D' (selective default).
"We also raised our long- and short-term local currency sovereign credit ratings to 'B-/B' from 'CCC+/C'. As a result, we expect, assuming Ukraine's long-term foreign currency sovereign credit rating remains at 'B-' and all other things being equal, to assign an issue rating of 'B-' to newly issued bonds from Ukraine's distressed debt exchange. Our 'D' issue rating on the country's bonds not tendered in the exchange remains unchanged," S&P said in a statement.
The outlooks on the long-term foreign and local currency ratings are stable.
According to S&P, the rating action follows the completion of Ukraine's distressed debt exchange on October 14, 2015. The raising of the ratings to 'B-' reflects the government's gradual implementation of reforms that support fiscal, financial, and economic stability, alongside improvement in some of Ukraine's external indicators, including its increasing international reserves.
"According to Ukraine's Ministry of Finance, all bondholder groups passed an extraordinary resolution (requiring a two-thirds majority) approving the proposed restructuring, with one exception. As a result of the debt exchange, Ukraine has restructured about $15 billion of foreign public debt, with a 20% reduction in principal. This reduces Ukraine's gross financing needs by $8.5 billion in the next four years, with equal reductions for the country's external financing needs." S&P said.
"We consider distressed exchanges as tantamount to default. Under our methodology, when a distressed exchange concludes we raise the sovereign issuer credit rating to our forward-looking view of default risk if we believe that no further resolution of the default will occur and the near-term ability of holdout creditors to materially complicate the issuer's financing ability is limited," S&P said.
"If the second treatment occurs, we think the IMF will enact its "lending into arrears" policy and continue to disburse under its $17.5 billion four-year exceptional access Extended Arrangement program ending in 2018," S&P said.
"Most of the program finances the Ukrainian budget, including Naftogaz investment projects, and replenishes the National Bank of Ukraine's (NBU, the central bank) international reserves. In September, Sweden's Riksbank also provided a $500 million swap line in Swedish kroner to the NBU for balance-of-payment support. Talks are ongoing between the NBU and The People's Bank of China to set up a swap line of Chinese yuan (CNY) 15 billion ($2.4 billion)," the rating agency said.
"Our rating and stable outlook on Ukraine factor in our assumption that the government will remain on course with the IMF program so that it receives a further $11 billion in installments. The IMF has disbursed over one-third of the $17.5 billion, four-year Extended Fund Facility program so far. Advances carry an average interest rate of 1.05% and cover most of Ukraine's net government borrowing requirements through 2018, now that commercial debt redemptions have been extended beyond 2018 as a consequence of the exchange. The rest of Ukraine's foreign currency commercial government debt is, however, less inexpensive. The new U.S. dollar foreign law notes issued in the exchange carry an interest rate of 7.75%," S&P said.
S&P analysts are forecasting that Ukraine's real GDP will fall by about 15% for 2015 after a fall of 6.8% last year. Next year they expect economic growth of 2%, in 2017 - by 3.5% and in 2018 - 4%.
Growth rates of consumer prices will rise to 55% this year after rising 12.2% in 2014, the experts said. In 2016 inflation will slow to 20%, in 2017 to 14% and in 2018 to 9%.
