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S&P revises Kiev’s outlook to stable from negative

July 15, 2014, 23:36 UTC+3 WASHINGTON
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WASHINGTON, July 15. /ITAR-TASS/. Standard & Poor's Ratings Services on Tuesday revised its outlook on Ukraine's capital, the city of Kiev, to stable from negative. The 'CCC' long-term issuer credit rating was affirmed, the ratings agency reported.

“The rating action follows our outlook revision on Ukraine on July 11, 2014. The rating on Ukraine's capital, Kiev, reflects our view of Ukraine's institutional framework as very volatile and underfunded,” S&P said.

“Other rating weaknesses are the city's severely constrained financial flexibility; weak budgetary performance; weak financial management; weak liquidity; very high debt burden, with associated foreign-exchange risks and high interest payments; and high contingent liabilities,” the agency said.

“The rating is supported by the city's position as the administrative and economic center of Ukraine, its fairly diversified economy, and wealth levels that are low, but noticeably exceed the national average,” it said.

“The stable outlook reflects our view of the balance between the city's material refinancing risks against our expectation of the central government's support for Kiev's debt refinancing/repayment plan in 2014,” S&P said.

“We would consider a positive rating action on Kiev only if we took a positive rating action on Ukraine and if the city's refinancing risks decreased materially, which is very unlikely in 2014-2015 in our view, due to large debt repayments that are due,” it said.

The agency said a negative rating action on Kiev would follow a negative action on Ukraine.

“We could also take a negative rating action on the city - even if the sovereign ratings remain unchanged - if the central government's support for Kiev diminished, leading to a weaker debt repayment capacity for the city,” it said.

“This would likely result in worse liquidity than we currently expect in our base-case scenario, and take the form of restricted access to state banks' and the treasury's liquidity,” S&P concluded.

Ukraine has been in political and economic turmoil since the end of last year, when then-President Viktor Yanukovich suspended the signing of an association deal with the European Union, which triggered massive protests that often turned violent and eventually led to a coup in Ukraine in February 2014.

Crimea seceded from Ukraine and reunified with Russia in mid-March. The move was not recognized by the international community and Kiev despite Moscow’s repeated explanations that the reunification was legal.

Crimea’s example apparently inspired residents of Ukraine’s southeastern regions who did not recognize the coup-imposed authorities, formed militias and started fighting for their rights. Kiev has been conducting a punitive operation against the breakaway Donetsk and Lugansk regions to regain control over them.

The operation has claimed hundreds of lives, including civilian, destroyed many buildings and forced southeastern residents to flee.

Western-leaning billionaire businessman and politician Pyotr Poroshenko won the May 25 early presidential election in Ukraine set by the provisional Kiev authorities propelled to power during the February coup. He was sworn in and took office June 7.

Poroshenko signed the economic part of the association deal with the EU on June 27, on the sidelines of an EU summit in Brussels. The political part of the deal had been signed in Brussels on March 21.

Poroshenko, dubbed “the chocolate king” because his structures control Ukraine’s Roshen confectionery manufacturer, had funded anti-government protests that led to February's coup.

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