Fitch assessments demotes Ukraine to ‘restricted default’
Date
8/15/2024 7:36:53 AM
(MENAFN) Fitch Ratings has downgraded Ukraine’s credit rating to ‘restricted default’ following the expiration of a ten-day grace period for a coupon payment on the country’s USD750 million 2026 Eurobond, which was due on August 1. This downgrade reflects Ukraine’s inability to meet its debt obligations under the terms previously agreed upon.
The United States-based credit agency lowered the rating for the 2026 Eurobond from ‘C’ to ‘D’, indicating default status, while maintaining other foreign-currency bonds at a ‘C’ rating. This move follows recent legislation passed by the Ukrainian parliament, which allows for the suspension of foreign debt payments until October 1. The law, enacted on July 18, permits the temporary halt of payments on state and state-guaranteed external commercial debt until a comprehensive restructuring agreement with creditors is finalized.
Fitch's decision marks an official default according to the agency’s criteria for the sovereign’s Issuer Default Rating (IDR) and the specific issue rating of the affected security. Similarly, rival credit rating agency S&P Global had downgraded Ukraine to ‘selective default’ on August 2.
Ukraine has been actively negotiating a restructuring of its substantial international debt, which totals nearly USD20 billion. A preliminary restructuring agreement was reached with a committee of major bondholders on July 22, just before the grace period for the coupon payment ended. This preliminary deal followed a two-year payment moratorium secured in 2022 due to the intensified conflict with Russia.
Fitch Ratings had previously projected that Ukraine’s state deficit would remain high, estimated at 17.1 percent of GDP for the year. Additionally, defense spending is anticipated to account for 31.3 percent of the country’s annual economic output in 2023. The agency also forecasts that government debt could rise to 92.5 percent of GDP by 2024.
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