Standard & Poor's Downgrades Ukraine's Rating to 'CC'

The credit rating agency Standard & Poor's has significantly lowered Ukraine's sovereign debt, considering that a number of Western countries' agreement to postpone debt payments equates to an "almost certain" default of this debt.

"Ukraine has asked its foreign creditors to postpone the repayment of all foreign debts for a period of 24 months," the agency said in a statement. "Following this request, we believe a default on foreign currency sovereign debt is almost certain," S&P added.

The long-term foreign currency rating of Ukraine was reduced by three degrees from “CCC+” to “CC”.

A group of Western creditors including France, the United States, Germany, Japan and Britain agreed on July 20 to defer interest payments on Ukrainian debt after a request from Kyiv, urging other Ukrainian bond holders to do the same.

The agency's rating was accompanied by negative prospects that reflect its opinion that "Ukraine can implement its debt restructuring plans", which would be considered a "default."

The agency noted "the significant risks to Ukraine's commercial debt service payments due to the government's debt restructuring plans, which stem from pressures related to the economy, balance of payments and the war budget with Russia."

The pessimistic hypothesis

Under the pessimistic hypothesis, the rating could be further downgraded and moved to a “partial default” before the last degree of default (D).

This could happen "if Ukraine implements what we consider a disorderly restructuring of debt or if the government fails to meet its foreign currency obligations," the agency said.

The optimistic scenario

In the optimistic scenario, a rating upgrade could be considered “if Ukraine’s security environment and medium-term macroeconomic prospects improve.”

The agreement, signed on July 20 by a group of Western creditors, provides for the suspension of Ukrainian debt servicing from August 1 until at least the end of 2023, “with the possibility of an additional year.”

Ukraine's economy has collapsed since the start of the war, and gross domestic product could see a 45% drop this year, according to a June estimate by the World Bank.