The international rating agency Fitch Ratings, after the completion of the debt restructuring of Eurobonds, raised the long-term issuer default rating (LTLC) of Ukraine in local currency (LTLC) to “CCC+” from “CCC-” and confirmed the long-term RDE in foreign currency at the level of “RD” (limited default ).
As is going in a statement from the agency on Friday night, Fitch also rated the new issues of dollar-denominated Series A bonds (due in 2029, 2034, 2035 and 2036) and Series B bonds (with maturity in 2030, 2034, 2035 and 2036) at “CCC”.
The agency reminds that on August 30, Ukraine completed the restructuring of outstanding sovereign Eurobonds ($19.7 billion at face value) and the state-guaranteed debt of Ukravtodor ($0.7 billion) ($24.3 billion, including accrued interest for the two-year moratorium on Eurobond payments from August 2022) for eight Eurobonds with a principal debt of $15.2 billion.
It is noted that the “CCC” rating of the new bonds corresponds to the expected sovereign RDE of Ukraine in foreign currency after the restructuring. This reflects reduced servicing of Ukraine’s external debt on bonds with no principal repayment until 2029 and managed coupon payments of $165 million (0.1% of projected GDP) in 2025 and $423 million (0.2% of projected GDP) in 2026.
Fitch forecasts total government debt to be 89.6% of GDP in 2024 (excluding the restructuring of other commercial liabilities), down from a forecast of 92.5% at the June review, as a result of the debt swap.
“The increase in RDE LTLC reflects the successful completion of the restructuring of Ukraine’s Eurobond debt, subject to continued servicing of its debt obligations in local currency, confirming our expectations for preferential treatment of debts in local currency. This is due to the fact that only a small part of LC’s debt belongs to non-residents, and most of it belongs to the National Bank of Ukraine and domestic banks (mainly state banks),” the agency noted.
At the same time, Fitch emphasizes, the ratings of new issues “CCC” and long-term RDE of Ukraine “CCC+” reflect a still significant credit risk in view of the protracted nature of the war (perhaps continuing into 2025), which will lead to the maintenance of a large budget deficit (projected at equal to 17.5% of GDP in 2024 and 15.3% of GDP in 2025) and funding uncertainties from 2025, partly due to the US election cycle, potential donor fatigue, residual risks related to EU funding plans and constraints opportunities of local banks to significantly increase their state debt obligations.
Regarding the confirmation of a limited default, Fitch believes that the successful completion of the restructuring of Ukraine’s Eurobond debt is only part of a broader restructuring episode that is ongoing, as the government announced the suspension of payments on additional obligations.
“Thus, the long-term RDE of Ukraine will remain at the level of “RD” until Fitch considers that the exchanges have been completed and relations with a significant majority of external commercial creditors are normalized,” the release reads.
