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Concorde Capital Research: S&P affirms B- rating on Ukraine international debt

April 23, 2018 | Cbonds

S&P Global Ratings affirmed its B- rating on Ukraine’s foreign currency debt with a stable outlook, according to the agency’s Apr. 20 press release. The stable outlook reflects the agency’s expectation on reforms that will enable Ukraine to get the fifth IMF loan tranche, S&P said.

The agency said it will consider a rating upgrade in case Ukraine’s economic growth outperforms the expectations of S&P analysts and if fiscal and external imbalances will improve. Also, the agency may decide to upgrade if it concludes that “the security situation in the nongovernment-controlled areas in Ukraine's east has stabilized and a further escalation is unlikely”.

S&P considers “a lack of funding from external donors” as among Ukraine's downside risks, as well as the adverse ruling of a UK court in a legal battle over the payment of USD 3 bln in bonds issued by Russia. Such a ruling ”might create technical constraints on Ukraine's ability to repay its commercial debt” in the worst case scenario, according to the press release.

S&P analysts see Ukraine’s real GDP growth will speed up from 2.5% in 2017 to 3.1% in 2018 and 2.9% in each of the next three years. They see Ukraine’s current account deficit to increase from 1.9% of GDP in 2017 to 2.6% in 2018-2019 and 2.7% in 2021. They expect Ukraine’s gross international reserves will grow from USD 18.8 bln as of end-2017 to USD 21.5 bln in 2018, then declining to USD 19.5 bln in 2019 and stabilizing at USD 20.8 bln in 2021.

Interestingly, S&P sees Ukraine's currency weakening to UAH 29.5/USD as of end-2018 and UAH 30.5/USD in 2019 (from UAH 28.1/USD in 2017), but the expect that afterwards it will strengthen to UAH 28.8/USD in 2021.

Alexander Paraschiy: We agree with S&P analysts that few reasons justify upgrading Ukraine’s sovereign rating today. A delay in IMF cooperation is the key risk currently, while the upcoming election season creates additional fiscal risks for the country. The rating agency made it clear that Ukraine’s rating will be downgraded in case the government fails to meet EFF program requirements, which will significantly limit the country’s ability to borrow abroad.

S&P’s outlook of Ukraine’s economic growth is more or less in line with the view of Ukraine’s central bank (below 3% real growth in 2019-2020), which might be too conservative if Ukraine continues with reforms in late 2019 and 2020. At the same time, we consider S&P’s view of the Ukrainian currency strengthening in 2020-2021 as very optimistic.

Company: Ukraine

Full company nameUkraine
Country of riskUkraine


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