Fitch low­ers Ukraine's rat­ing on debt re­strict­ing deal

The Pak Banker - - BUSINESS -

Rat­ings agency Fitch has low­ered its rat­ing for Ukraine say­ing the debt restruc­tur­ing deal Kiev struck with a group of cred­i­tors was tan­ta­mount to de­fault.

Fitch low­ered Ukraine's rat­ing of long-term public debt from "CC" to "C," af­ter the deal was an­nounced Thurs­day be­cause it led to ma­jor losses for the bond­hold­ers. "Fitch con­sid­ers that this rep­re­sents a Dis­tressed Debt Ex­change (DDE) un­der its cri­te­ria that re­sults in ma­te­rial losses to bond­hold­ers and is be­ing con­ducted in or­der to avoid de­fault," the agency said in a state­ment re­leased late Thurs­day.

The ac­cord struck be­tween Kiev and Franklin Tem­ple­ton and three other US fi­nan­cial groups calls for a 20 per cent "hair­cut" to the face value of the bonds they hold - nearly half of the $19 bil­lion (16.8 bil­lion eu­ros) in com­mer­cial debt un­der re­view. Thurs­day's agree­ment saves Ukraine $11.5 bil­lion but is still short of the tar­get set by the In­ter­na­tional Mon­e­tary Fund.

While the "hair­cut" was far less than the 40 per cent ini­tially sought by Kiev, the com­pro­mise deal with cred­i­tors was vi­tal to Ukraine's ef­forts to se­cure $ 15.3 bil­lion ( 13.7 bil­lion eu­ros) in sav- ings on to­tal for­eign debt over the com­ing four years.

Restruc­tur­ing was a manda­tory part of a broader $40 bil­lion global res­cue pack­age that the IMF patched to­gether at the start of the year. Though the de­fault-avert­ing ac­cord with lenders al­lows Ukraine con­tin­ued ac­cess to in­ter­na­tional credit mar­kets, Fitch's down­grade is likely to in­crease costs of ad­di­tional bor­row­ing. The painful talks lasted for five months and saw both the IMF and Washington put im­mense pres­sure on bond­hold­ers to ac­cept short­term losses in re­turn for keep­ing Ukraine's pro-Western lead­ers from be­ing forced into re­sum­ing their re­liance on Rus­sia.

Ukraine's econ­omy is ex­pected to shrink nearly 10 per cent this year due in part to the loss of key coal and steel min­ing fac­to­ries in the proRus­sian sep­a­ratist east.

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