18:26 29.10.2012

S&P places Kyiv CreditWatch with negative implications on slow Progress in securing refinancing for $250 m LPN

2 min read
S&P places Kyiv CreditWatch with negative implications on slow Progress in securing refinancing for $250 m LPN

Standard & Poor's Ratings Services on October 29, 2012, placed its 'B-' long-term issuer credit rating on the city of Kyiv on CreditWatch with negative implications, S&P said in a statement.

According to the statement, the CreditWatch placement reflects the rating agency's concern about Kyiv's slower-than-expected progress in implementing its plan to refinance a $250 million U.S. dollar-denominated loan participation notes (LPNs) due on November 26, 2012, with an issue of domestic bonds in Ukrainian hryvnias worth UAH 3.5 billion ($440 million).

S&P notes that by October 26, 2012, only UAH 0.5 billion had been raised, and that sum had already been used to partially repay one of the bank loans (UAH 0.75 billion).

Given the absence of an alternative debt repayment scenario, S&P experts say they understand that the central government's support might be needed. This could come in the form of support from the state banks in placing the remaining UAH 3 billion portion of the bond or from direct central-government financing.

Due to weak budgetary performance and very negative liquidity, the rating agency's said the existing base-case factors in refinancing were the most probable and reliable plan to repay the LPNs. This is supported by Kyiv's positive track record, demonstrated in particular in 2011, when the city refinanced its $200 million LPNs. However, time pressure leaves the city less room to maneuver, which increases the likelihood of technical or other difficulties in placing a sufficient amount of the domestic bond.

According to the statement, the rating on Kyiv city reflects Ukraine's "volatile and underfunded" institutional framework, which constrains the city's financial flexibility. It also reflects Kyiv's high debt service, "very negative" liquidity, and material debt burden, with associated foreign-exchange risks. However, the city's importance as the administrative and economic center of Ukraine (B+/Negative/B; Ukraine national scale 'uaA+'), and Kyiv's fairly diversified economy, with wealth exceeding the national average severalfold, support the rating.

S&P says it expects to resolve the CreditWatch placement within the next few weeks.

Future rating actions would depend on progress in implementation of the debt-refinancing plan. If the city has not managed to secure refinancing by mid-November, S&P will likely take a negative rating action. Should the city secure enough funds to repay the LPNs, S&P would affirm the ratings at their existing level.

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