Fitch affirms Ukraine's rating at 'CC'

MOSCOW. Dec 11 (Interfax) - Fitch Ratings has affirmed Ukraine's long-term foreign-currency issuer default rating (IDR) at 'CC'.

"The affirmation [...] reflects Fitch's expectation of a further commercial debt restructuring before the two-year standstill on Eurobond payments expires on September 1, 2024," Ukrainian media reported, citing the ratings agency's statement on its website.

Fitch said that if agreement on a single comprehensive debt restructuring with commercial creditors cannot be reached, potentially due to security-related uncertainty, then an intermediate step of further deferral of Eurobond payments would be made, as with the Eurobond payment deferral effected in August 2022.

Fitch also affirmed the Ukraine's 'CCC-' local currency IDR, which it said was higher than the foreign currency rating because domestic debt will be excluded from restructuring next year. It said this would take place partly because only 3% of it is held by non-residents, compared with 45% held by National Bank of Ukraine (NBU), limiting any such benefit to Ukraine. In addition, 40% is held by the domestic banking sector, half of which is state-owned, the restructuring of which could impair the domestic debt market and financial sector stability, Fitch said.

"Nevertheless, the rating reflects still substantial credit risk on local currency debt over a longer horizon, partly due to uncertainty over financing sources for a potentially prolonged period of very high fiscal deficits," Fitch said.

Fitch expects the military operation within the country to continue through 2024 within its current broad parameters.

The agency also believes that there are no politically feasible concessions that could lead to a negotiated end to the conflict, potentially leading to a very protracted standoff.

"Over a longer horizon, we anticipate some form of settlement, but view a 'frozen conflict' as more likely than a sustainable peace deal, at least for a significant period," Fitch said.