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Moody's downgrades Ukraine's sovereign rating to Caa2

February 01, 2014, 13:47 UTC+3 LONDON

The downgrade decision was due to "escalation of social and political tensions in the country"

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LONDON, February 01, 13:08 /ITAR-TASS/. Moody's Investors Service has downgraded Ukraine's government bond rating to Caa2 from Caa1, the international ratings agency reported.

Moody’s assigned a negative outlook on the rating, according to a statement posted on the agency’s website on Friday.

“This concludes the review for downgrade that Moody's initiated on 20 September 2013,” the statement said.

The downgrade decision was due to “escalation of social and political tensions in the country, and the associated risk of a severe administrative crisis and/or prolonged political uncertainty,” Moody’s said.

Other reasons included an “increased risk of a sharp rise in external liquidity needs due to rising demand for foreign currency by the Ukrainian population amid the political crisis and the recent weakening of the domestic currency” and “heightened uncertainty regarding the predictability of the external liquidity support from Russia.”

“Moody's decision to assign a negative outlook on Ukraine's Caa2 sovereign rating is driven by the continued risk of an external liquidity crisis, even if external support from Russia were to be disbursed as planned this year,” the agency said.

“This reflects Moody's view of a limited likelihood that the Ukrainian government would be in a position to address effectively the country's underlying structural issues,” it said.

Anti-government protests have been ongoing in Ukraine since Kiev refused to sign an association agreement with the European Union at a summit in Vilnius in November and decided to seek closer ties with Russia instead.

A second wave of demonstrations occurred in Ukraine after parliament passed a set of laws toughening punishment for public order violations on January 16. Protesters stormed and seized government buildings. Three protesters are believed to have been killed. The Interior Ministry says up to 200 policemen have been injured. The laws were later repealed.

Ukrainian Prime Minister Nikolai Azarov tendered his resignation Tuesday, which President Viktor Yanukovich accepted.

Russia reduced the natural gas price for its neighbor to $268 from some $400 per 1,000 cubic meters and decided to provide Ukraine with a $15 billion loan in December 2013 after Kiev’s refusal to sign the association agreement with the EU but has now suspended the financial assistance package implementation until the formation of a new government in Ukraine following Azarov’s resignation.

On January 28, the Standard & Poor’s ratings agency lowered its long- and short-term foreign currency sovereign credit ratings on Ukraine to “CCC+/C” from “B-/B”, with a negative outlook.

Ukraine’s credit rating according to Fitch currently stands at “B-“ with a negative outlook.

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