R&I Ukraine Foreign Currency Issuer Rating: CC, Previously CCC

R&I Downgrades to CC, Places the Long-term Issue Rating on the Rating Monitor With View to Downgrading: Ukraine 

 Rating and Investment Information, Inc. (R&I) has announced the following: 

ISSUER: Ukraine Foreign Currency Issuer Rating: CC, Previously CCC 

Long-term Issue Rating: (CC), With View to Downgrading, Previously CCC 

RATIONALE: Since May 2014, when R&I downgraded the Foreign Currency Issuer Rating for Ukraine to CCC, R&I has kept a close eye on whether the Ukrainian government makes progress in rebuilding the country's economy and fiscal position and restoring its debt repayment capacity. 

Owing to the International Monetary Fund (IMF) executive board's approval of a new aid package for Ukraine on March 11, 2015 and immediate disbursement of a US$5 billion loan, concerns about lack of funding have receded for now. Since one of the conditions for the new aid program is to finalize debt restructuring negotiations by end-May, however, the government approved on April 4 the framework for Ukraine's debt operation and bonds to be restructured, aiming to conclude negotiations with creditors by the deadline. The operation seeks to reduce a substantial amount of debt. If the debt operation is executed as planned, the country's debt in foreign currency will likely be deemed as a default. 

Even if the debt operation takes place as scheduled, the government's debt burden remains heavy. Because of the unstable situation in eastern Ukraine, the country's economic and fiscal positions are still bleak. Its foreign currency financing will continue to be dependent on support from the IMF and the EU and US governments. Even in the case of a success in the debt operation, a significant improvement in the debt repayment capacity is unlikely, raising concerns that the government may run out of funds again. 

Another possibility is that the negotiations may be deadlocked, which would lead to a delay in the IMF's next loan disbursement. In that case, it would be even more difficult for the government to raise foreign currency funds. 

Based on these considerations, R&I has downgraded the Foreign Currency Issuer Rating to CC. R&I has also downgraded the Long-term Issue Ratings for bonds in foreign currency to CC and placed them on the Rating Monitor with a view to downgrading since it is unclear at this moment how these bonds will be treated. 

R&I will pay close attention to the results of the negotiations and the IMF's provision of financial aid, as well as to Ukraine's foreign currency liquidity and economic and fiscal positions, and incorporate developments into the rating on an as-needed basis. 

The primary rating methodology applied to this rating is provided at "R&I's Analytical Approach to Sovereigns". The methodology is available at the web site listed below, together with other rating methodologies that are taken into consideration when assigning the rating.  

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