Hetmantsev explains the reasons for Ukraine's credit rating downgrade

The downgrade of Ukraine's credit rating by the international rating agency S&P is not a sensation. Danylo Hetmantsev, chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, said this in a Telegram message, Ukrinform reports.

"At the weekend, the media was stirred by the news that the international rating agency S&P had downgraded Ukraine's long-term sovereign credit rating and foreign currency issuer rating from CCC to CC, leaving a negative outlook. According to the agency's scale, the rating was downgraded to the category "issuer default has not yet occurred, but is almost inevitable". In fact, there is no sensation here. Ukraine (the Ministry of Finance) is preparing to continue restructuring its commercial external debt (to Eurobond holders, GDP warrants), with negotiations to be completed by August 2024," Hetmantsev said.

According to him, according to the criteria of the rating agencies, restructuring operations (deferred payments) fall under agreements on the exchange of bad debt, so the definition of default applies to them. Accordingly, on the eve of the negotiations, the rating agencies will start downgrading Ukraine's sovereign credit rating and our foreign currency ratings to the last pre-default level, which was actually done by S&P first. Other agencies (Fitch, Moody's) will follow in the near future.

"On the eve of an agreement or upon agreement, the ratings will be downgraded to selective/limited default. The situation was the same in 2022, when the first restructuring of external commercial sovereign debt was carried out. After the legal completion of the exchange procedure and the new terms of the restructured issues come into effect, we can expect a certain upgrade of Ukraine's sovereign and foreign currency ratings. This is the baseline scenario supported by the EFF program with the IMF," Mr. Hetmantsev said.

He reminded that under this scenario, in December, Ukraine carried out a successful debt restructuring, having fixed a delay in servicing and repayment of the external state debt to the G-7 countries and the Paris Club until March 2027. The restructuring of debt to external commercial creditors is also provided for under the umbrella of the EFF program.

"So, it is very likely that it will also be achieved. However, it is too early to talk about the terms of the restructuring, as it requires the consent of at least 75% of the holders of the relevant securities. Any speculation about the debt restructuring at this stage is pure speculation," Mr. Hetmantsev emphasized.

As reported, the international rating agency S&P Global Ratings has downgraded Ukraine's long-term sovereign credit rating and foreign currency issuer rating to CC from CCC, with a negative outlook.