“The downgrade of Ukraine's long-term foreign currency IDR [Issuer Default Rating] to 'CC' … indicates that a default of some kind appears probable,” the statement said.
Fitch maintains Ukraine’s junk bond CCC rating on local currency debt.
The factors contributing to the downgrade, according to the rating agency, include losses at Ukraine’s state energy company Naftogaz that have reached 13 percent of GDP in 2014, and the increase in direct and guaranteed Ukrainian debt to 72 percent of GDP in 2014.
Meanwhile, a negative GDP growth in 2014 and projections of a contraction of 5 percent this year also weighed heavily on the decision to downgrade, Fitch said.
A $17.5 billion IMF loan deal with Ukraine reached this week would help Kiev finance debt, the agency explained, ”but an associated restructuring of privately-held external debt appears increasingly probable.”
A further downgrade would be possible if there is an announcement to restructure debt with private external creditors, lack of progress on reforms and suspension of IMF funding, and an escalation of the conflict in eastern Ukraine, according to the rating agency.
“We currently do not envisage a situation in the short term in which the rating would be upgraded,” Fitch said.
On February 7, Fitch downgraded Ukraine’s long-term foreign currency issuer default rating (IDR) by two notches, to CCC from B-, citing political instability and the deteriorating economic picture.
