S&P warns of possible downgrade for Kyiv city rating

Standard & Poor’s placed the credit rating of the city of Kyiv (CITKIE) under review for possible downgrade from “B-“, the agency reported yesterday. S&P noted concern about no visible progress in refinancing of USD 250 mln Eurobond that Kyiv is due to repay on November 26. The city had planned to attract up to UAH 3.5 bln (USD 430 mln) in local bonds to refinance the Eurobond. According to S&P, Kyiv has been only able to attract UAH 0.56 bln (USD 70 mln) as of a month before the deadline, and had used the proceeds to repay other debt. The agency believes the city might use the opportunity to attract financing from state banks or the state budget to redeem its Eurobond. According to Interfax, the city mayor confirmed that the Ministry of Finance, National Bank and some commercial banks have agreed to assist the city in closing the deal on time. The yield for Kyiv’s Eurobond increased 1.9 pp to 13.22% yesterday (+3.8 pp in 5 days); Kyiv’s other bonds (due in 2015 and 2016) did not react to the news.

Alexander Paraschiy: The lack of liquidity in the city’s coffers raises the risk of untimely repayment, but with four weeks still left until the deadline, we believe a state-assisted financing deal will be put together on time. We expect more details from Kyiv city representatives soon, and see the weakness in the 2012 bond pricing as a good entry opportunity.