Ukraine Rating Raised to B- by S&P on Debt Exchange, Reform Plan

  • Risk of another default has diminished on commitment to reform
  • Country's outlook is stable assuming economic change continues

Ukraine’s credit rating was lifted to B- from SD, or selective default, at Standard & Poor’s after the government reached a restructuring agreement with the majority of its creditors, enabling a bond exchange next month and reforms of the war-torn country’s economy.

S&P lifted Ukraine’s sovereign rating to six levels below investment grade on Monday after cutting it to default status last month when it was negotiating the restructuring deal with a Franklin Templeton-led creditor committee. The nation’s credit outlook is stable as it pursues fiscal, financial and economic reforms as part of the debt relief program, S&P said. It’s rated Ca by Moody’s Investors Service and RD (restricted default) by Fitch Ratings.

“We view the risk of another default in the next two to three years as diminished due to the Ukrainian authorities’ commitment to the reforms set out in the International Monetary Fund (IMF) program,” S&P analysts including Frank Gill said in the report. “An improvement in security conditions will likely fuel a potentially stronger economic recovery in 2016.”

The economy will shrink about 15 percent in 2015, the credit-rating company said. Passage of the restructuring on most of the bonds ends Ukraine’s seven-month battle to lower its debt to meet conditions for a $17.5 billion International Monetary Fund bailout and revive an economy battered by war with pro-Russian rebels. Russia didn’t take part in voting on the agreement.

“Largely as expected, but reflects progress in debt restructuring,” Timothy Ash, a credit strategist at Nomura International Plc in London, said in an e-mailed note about the upgrade at S&P. “Ukraine still faces huge challenges, particularly on the domestic political and security front.”

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