Ukraine is at risk of default after a political crisis “deteriorated substantially,” according to Standard & Poor’s (S&P).
Fighting between police and anti-government protesters has claimed at least 77 lives this week.
S&P cut Ukraine to “CCC,” eight levels below an investment rating, from “CCC+” and kept its outlook negative, citing the increasing risk that Ukrainian President Viktor Yanukovych’s government will fail to service its debt.
“We now believe it is likely that Ukraine will default in the absence of significantly favorable changes in circumstances, which we do not anticipate,” S&P analysts said in a statement yesterday.
Diplomatic efforts in Kiev and Brussels following the deadliest day of protests in the Ukrainian capital left Yanukovych to consider mounting calls to step aside.
An accord ending the political crisis was due to be signed at noon in Kiev yesterday after talks between Yanukovych, opposition leaders, and EU and Russian officials, the presidential administration said on its Web site.
“The political situation in Ukraine has deteriorated substantially,” S&P said. “We believe that this puts the government’s capability to meet debt service at increasing risk and raises uncertainty regarding the continued provision of Russian financial support over the course of 2014.”
Ukrainian markets rebounded as investors anticipated an endgame was at hand. The yield on Ukraine’s Eurobond due in June declined almost 7 percentage points.
The notes slumped the most on record the day before as the deadliest clashes in the three-month standoff overshadowed Russia’s decision to resume a US$15 billion bailout plan put on hold last month.
A truce agreed to on Wednesday crumbled on Thursday as skirmishes erupted at the protest camp in Independence Square in Kiev.
Russia said this week it will put up another US$2 billion in a second round of financing after having its sovereign wealth fund invest the first US$3 billion late last year.
“We believe that the Russian government’s support for Ukraine is tied to the current leadership, and its political orientation away from the EU and toward Russia,” the S&P report said. “As a result of the intensifying political turmoil in Ukraine, we consider that continued Russian support up to the committed US$15 billion is increasingly uncertain.”