Faced with the collapse of its economy, kyiv asked to defer payments on its foreign debt for 24 months.
Financial rating agency S&P on Friday downgraded Ukraine’s long-term debt rating by three notches to CC, saying the agreement recently granted by several Western countries to spread its payments amounts to a default “almost certain“. “Ukraine has asked its foreign creditors to defer payments on all external debt for 24 months”S&P said in a statement.
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“Following this request, we believe that a default on sovereign debt in foreign currencies is a virtual certainty.», Specifies the rating agency. Ukraine’s long-term foreign currency rating was downgraded drastically by three notches from CCC+ to CC. A group of Western creditors including France, the United States, Germany, Japan and the United Kingdom agreed on July 20 to a postponement of interest payments on Ukraine’s debt after a request from kyiv, urging other Ukrainian bondholders to do the same.
“debt restructuring plan”
S&P’s rating was given a negative outlook reflecting the agency’s view “that Ukraine is likely to implement its debt restructuring plans“, which would be considered “as a defect“, adds S&P. The agency also highlightshigh risks to Ukraine’s commercial debt service payments, given the government’s debt restructuring plans, which stem from economic, balance of payments and budget pressures in the war with russia“.
In the pessimistic hypothesis, the rating could be lowered further and change to “SD“, that is “Selective Default» («partial defect“), last notch before the default (“D“). It could happen”if Ukraine implements what we consider to be a disorderly debt restructuring, or if the government fails to make payments on its foreign currency obligations“, details the agency. In the optimistic scenario, however, a rating upgrade could be considered.if Ukraine’s medium-term security environment and macroeconomic prospects improve“.
Suspension of debt services
The agreement signed on July 20 by the group of Western creditors provides for the suspension of Ukrainian debt service from August 1 and until the end of 2023, at least, “with the possibility of an additional year“.
Ukraine’s economy has collapsed since the start of the war and could see its GDP plunge by 45% this year, according to World Bank estimates released in June. In this context of exceptional crisis, kyiv had asked its creditors to defer payment, indicating that it wanted to give priority to “foreign exchange resources for priority war-related expenditures“. Measures to defer Ukraine’s payment of its obligations could save it at least $3 billion over two years, according to calculations by the Bloomberg agency.
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S&P had already downgraded Ukraine’s rating on May 27 and also assigned it a negative outlook, due to “greater fallout from the Russian military attack“, and had explained to expect “that the Russian-Ukrainian military conflict continues“. Russia invaded Ukraine on February 24.