Bloomberg News

Ukraine’s Outlook Cut to Negative by S&P on Funding Risks

March 15, 2012

Ukraine’s credit-rating outlook was cut to negative from stable by Standard and Poor’s, which cited “significant” funding risks after the country failed to restart an international bailout or agree with Russia on lowering natural-gas prices.

S&P reaffirmed Ukraine’s B+ foreign-currency debt rating, which is four steps below investment grade and ahead of only Belarus and Bosnia-Herzegovina in eastern Europe. The move means S&P is more likely to lower Ukraine’s rating than leave it unchanged or raise it.

The outlook reflects “increased risks regarding Ukraine’s significant fiscal and external refinancing needs,” S&P analysts Trevor Cullinan and Ivan Morozov in New York said today in an e-mailed statement. Its ratings are constrained by “the government’s unwillingness to make further structural improvements to the public finances” as well as “highly leveraged” banks with “considerable nonperforming loans.”

Ukraine’s $15.6 billion International Monetary Fund bailout has been on hold for a year as the government refuses to raise household natural-gas costs to narrow the budget deficit. Instead, the former Soviet republic is seeking to reduce the price it pays Russia for the fuel by about a third. So far, state-run OAO Gazprom has offered a 10 percent discount.

Yields Rise

The yield on Ukraine’s dollar bonds due 2013 rose 55 basis points to 8.119 percent, the highest level since March 1, as of 4:56 p.m. in Kiev, data compiled by Bloomberg show.

Ukraine wants to restructure $3 billion of debt repayments to the IMF due this year, First Deputy Economy Minister Vadym Kopylov said today. The country needs $11.9 billion to service its debt in 2012, the Finance Ministry said last month.

Moody’s Investors Service cut Ukraine’s credit-rating outlook to negative from stable in December. Fitch Ratings downgraded its outlook to stable from positive in October.

S&P said it may revise Ukraine’s outlook back to stable if agreements were reached with either the IMF or Gazprom or both to improve external liquidity, access to international capital markets and the country’s balance of payments.

“Such a resolution could take place in the months following the parliamentary elections in October 2012, at which time we expect to review the ratings again,” S&P said.

To contact the reporters on this story: Daryna Krasnolutska in Kiev at; Kateryna Choursina in Kiev at

To contact the editor responsible for this story: Balazs Penz at Claudia Carpenter at

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