4 Aug 2022 12:48

S&P affirms Kyiv's rating at "CCC+' despite lowering Ukraine's rating to 'CC'

MOSCOW. Aug 4 (Interfax) - The international credit rating agency S&P Global Ratings affirmed its long-term foreign and local currency issuer credit ratings on the Ukrainian capital city of Kyiv at 'CCC+' with negative outlook, despite lowering its long-term foreign currency sovereign credit rating on Ukraine to 'CC'.

"The affirmation despite the sovereign foreign currency rating being lowered reflects our opinion that Kyiv remains able and willing to continue honoring its debt-service obligations in both foreign currency and local currency," Ukrainian media outlets quoted S&P Global Ratings as saying.

On July 29, 2022, the credit rating agency lowered its long-term foreign currency sovereign credit rating on Ukraine to 'CC' from 'CCC+'. At the same time, it affirmed the local currency rating at 'B-' and the transfer and convertibility (T&C) assessment for Ukraine at 'CCC+'.

A 'CCC+' rating means the issuer is currently vulnerable and is dependent upon favorable business, financial, and economic conditions to meet its financial commitments.

S&P believes that in the current circumstances of the crisis between Ukraine and Russia and the subsequent sharp economic contraction, the city's financial indicators might deteriorate dramatically and sharply, which can complicate the fulfillment its obligations in the future.

The city of Kyiv has only one foreign-currency denominated issue outstanding maturing in December 2022. With special permission from the National Bank of Ukraine, Kyiv made another payment on this bond on June 15, 2022, of about $30 million. There is one instalment left from this issuance: $30 million due in December 2022.

The S&P base-case assumes the city will likely meet this payment given its currently high cash reserves (about 13 billion hryvni) and management's commitment to fulfil its debt obligations.

Regarding local currency debt, the city has a credit line from the State Savings Bank of Ukraine (Oschadbank) of 1.2 billion hryvni, maturing in 2023-2026, and three local currency bonds outstanding totaling 1.1 billion hryvni, maturing in 2024-2026.

The negative outlook for Kyiv reflects the rating agency's view that in the next six-to-12 months the city of Kyiv might face greater difficulties in meeting its debt repayments than we currently envisage, it said.

S&P could lower Kyiv's ratings in the next six-to-12 months if it observed a higher probability of Kyiv not meeting its obligations, for example if capital controls are tightened. It could also lower the ratings if Kyiv's liquidity position were to deteriorate significantly or there were indications that the city might de-prioritize debt service in favor of meeting spending needs.

S&P could consider revising the outlook to stable or raising the rating on Kyiv if the rating agency took a similarly positive action on the sovereign, and saw this as a sign of decreasing risks related to Kyiv's ability to service its debts. In this scenario, S&P would likely see a reduced risk of T&C restrictions hampering Kyiv's timely debt servicing.

The next scheduled publication on Kyiv is on October 28, 2022.