Fitch downgrades Ukraine’s sovereign Eurobonds rating to CC

Fitch Ratings downgraded the rating of Ukraine’s foreign currency sovereign bonds (UKRAIN) to “CC” from “CCC”, the agency reported in its Feb. 13 press release. The downgrade indicates that “a default of some kind appears probable,” the agency commented. In particular, the agency noted that the restructuring of privately held external debt appears increasingly probable. Fitch analysts estimate that Ukraine’s real GDP will fall 5% in 2015, after about a 7.5% plunge in 2014, which is considerably worse that the agency’s previous estimate of flat yoy GDP in 2015, provided in August.



The agency estimated Ukraine’s direct and guaranteed debt at 72% of GDP in 2014 and outlined additional financing needs in 2015. The budgeted funds of around 2% of GDP for Ukrainian bank recapitalization won’t be enough, which will put further upward pressure on the state debt in 2015, the agency said. Fitch also commented on the commitment of the new Ukrainian government – established in December – to undertake structural reforms, particularly noting the high political risk involved in implementing them.



Alexander Paraschiy: Thus far, Fitch has assigned Ukraine the lowest sovereign rating among the big three ratings agencies and assigned Ukraine the lowest rating among all its covered countries (before the downgrade, Ukraine’s rating was in line with that of Venezuela). The agency’s rating action will unlikely have any effect on the quotes of Ukrainian sovereign bonds, which already trade at distressed levels.



In particular, the shorter Ukrainian Eurobond yields more than 100%. Nor will the downgrade will affect the pricing of other Eurobonds covered by Fitch: Ukreximbank (EXIMUK), Oschadbank (OASCHAD), Privatbank (PRBANK), DTEK (DTEKUA), Metinvest (METINV), Ukrainian Railways (RAILUA), Avanagardco (AVINPU), and Ukrlandfarming (UKRLAN), whose ratings will likely be downgraded this week as well.



Meanwhile, the fixed income market is looking forward to see how the Ukrainian government will amend its 2015 budget to reduce its deficit and bring its revenue plan closer to reality. It’s also waiting to hear any message from the IMF and other potential donors on the amount of financial aid they will provide Ukraine in 2015. The size will be important to understand whether the government will be able to stabilize the Ukrainian currency and whether it will have to reprofile its sovereign bonds.

Источник: Конкорд Капитал