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Ukraine's Credit Ratings Raised by Fitch After $14.9 Billion IMF Loan Deal
7 July 2010
Ukraine’s credit grade was raised at Fitch Ratings after the country reached an agreement with the International Monetary Fund’s mission on a $14.9 billion loan to help the former Soviet state rebuild its economy.

Fitch upgraded Ukraine’s sovereign long-term foreign and local currency issuer default ratings by one step to B from B-, it said in a statement today. The outlooks are stable, it said. The upgrade puts Fitch’s rating in line with Standard & Poor’s and Moody’s Investors Service rankings on the sovereign, five levels below investment grade.

The IMF agreed the two-and-a-half year stand-by arrangement to help the eastern European country “entrench fiscal and financial stability, advance structural reforms and put Ukraine on a path of sustainable and balanced growth,” the fund said on July 3. Credit default swaps on the country’s five-year debt eased 18 basis points today to 633, according to CMA DataVision in London, as investors scaled back bets of a default.

The IMF loan “supports confidence in the policy and financing outlook, reduces the risk of macroeconomic and financial instability and is positive for the country’s creditworthiness,” said Fitch analyst David Heslam. “

Ukraine’s bonds due 2016 gained 0.55 cents, lowering the yield to 8.3 percent from 8.4 percent, according to prices on Bloomberg.

‘Somewhat Delayed’

“The ratings upgrade is somewhat delayed, as most ratings changes typically are,” said David Spegel, global head of emerging markets strategy at ING Groep NV in New York. “Mostly it reflects the significant decline in political risks.”

The IMF’s Executive Board will make a final decision by late July, following “approval of legislative changes relating to the budget and financial sector,” the fund said in its July 3 statement. The IMF wants Ukraine’s government to keep its deficit at 5.5 percent of gross domestic product this year and 3.5 percent of GDP next year.

Ukraine’s fiscal outlook also improved after President Viktor Yanukovych secured gas subsidies from his Russian counterpart Dmitry Medvedev in an agreement that is likely to bring to an end regular gas price disputes that had hampered supplies to Europe.

Policy Consistency

“A credible and consistent program to reduce the budget deficit and place the government debt ratio on a downward trend, combined with reforms to reduce Ukraine’s vulnerability to shocks, has the potential to further improve creditworthiness over time,” said Heslam. “However, a track record of policy consistency has yet to be established in Ukraine.”

Fitch cut Ukraine’s ratings three times between October 2008 and November 2009 after the global financial crisis undermined investment in the country and left about 20 banks in need of state aid. Today’s upgrade comes one day before Ukraine embarks on a road show for its first Eurobond sale since 2007. The government wants to raise $1.3 billion through the bond sales.

Ukraine’s economy shrank 15.1 percent last year, the deepest decline since 1994, as demands for its exports slid. Fitch expects the economy to expand 4.5 percent in 2010 and 4.7 percent in 2011, driven by stronger external demand and an improvement in Ukraine’s terms of trade

Source: Bloomberg




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