Bloomberg News

Cyprus Downgraded to Baa1 From A2 by Moody’s; Negative Outlook

July 27, 2011

July 27 (Bloomberg) -- Cyprus’s long-term government bond ratings were downgraded by Moody’s Investors Service to Baa1 from A2, with a negative outlook.

Moody’s cited concerns about Cyrpus’ government finances, exacerbated by the destruction of a power station this month, a “fractious political climate,” and the risk that some banks will need state support because of their exposure to Greece.

“Although the government has recently announced a range of structural measures intended to improve fiscal sustainability, the positive impact of those measures for the next few years will be reduced by the plant’s destruction,” Moody’s said in an e-mailed statement today. “In view of the regular power outages caused by the destruction of this plant, Moody’s has reduced its forecasts for Cyprus’s economic growth to 0 percent in 2011 and 1 percent in 2012.”

The yield on Cyprus’ 6 percent bond maturing in June 2021 rose 13 basis points to 10.06 percent as of 9:06 a.m. in London.

Cyprus has been suffering electricity shortages since the July 11 explosion at a munitions depot on the east Mediterranean island’s southern coast, which killed 13 people, knocked out the nearby 767-megawatt Vasilikos power station. The plant supplied about half of the country’s power generation capacity.

--With assistance from Matthew Brown in London. Editors: Matthew Brown, Peter Branton

To contact the reporter on this story: Maria Ermakova in London at mermakova@bloomberg.net

To contact the editor responsible for this story: Maria Ermakova at mermakova@bloomberg.net


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