S&P lowers Ukraine rating to 'CCC' on debt restructuring plan

MOSCOW. April 7 (Interfax) - S&P Global Ratings has lowered the long-term foreign currency rating assigned Ukraine to 'CCC' from 'CCC+' with negative outlook.

"The rating action follows Ukraine's official announcement that it will restructure its foreign currency external debt to restore public debt sustainability, as part of the recently agreed, four-year, $15.6 billon Extended Fund Facility arrangement with the IMF," S&P said in a statement.

The negative outlook on reflects risks to Ukraine's commercial debt service, given the government's debt restructuring plan, it said.

S&P affirmed its 'C' short-term foreign currency, 'CCC+/C' local currency, and 'uaBB' national scale ratings. "We understand Ukraine's hryvnia-denominated government debt is not in scope for the debt restructuring plan," the agency said. The outlook on the local-currency rating is stable.

S&P could lower the foreign currency ratings in the next 12 months if, for instance, it considers it a virtual certainty that commercial debt obligations will be included in the government's debt restructuring. "We understand that the parameters and timing of the restructuring have yet to be decided and are contingent on the IMF's assessment of public debt sustainability, which is expected to be updated in early 2024," the agency said.

It recalled that Ukraine's creditors, including the U.S., UK, Canada, France, Germany, and Japan, had agreed to an extension of the deferral of external debt payments until the end of the IMF program in 2027, from the previously agreed period of August 2022 until September 2024. The creditors also agreed to an additional debt restructuring, expected to take place by mid-2024, however this agreement is subject to private external creditors delivering a debt restructuring at least as favorable, the agency said.

"If the commercial debt restructuring takes place in 2024, in light of protracted balance-of-payments and fiscal challenges, we would likely view it as distressed," S&P said.

It said that in its view, the government's ability and medium-term incentives to meet its financial commitments in local currency are somewhat higher than those in foreign currency.