Moody’s upgrades Ukraine rating to B3

Moody’s Investors Service upgraded on June 12 Ukraine’s
(UKRAIN) long-term issuer and senior unsecured ratings to B3, from Caa1, with a
Stable outlook, the agency reported the same day. The main driver for the
upgrade was “the easing of Ukraine’s near-term funding challenges” due to the initiation of the stand-by loan program with the IMF.
Moody’s estimates the new IMF agreement will open an opportunity for Ukraine to
receive multilateral and bilateral financial support in the near term worth up
to USD 8.6 bln, or 6% of its 2020 GDP. The agency also expects the IMF program
“will help to anchor the reform progress achieved in recent years and support a
continuation of Ukraine’s improved monetary and fiscal policy settings.” 

Moody’s also affirmed the Ca rating on Ukraine’s USD 3
bln Eurobond (the so-called Yanukovych debt, issued in December 2013) held by a
Russian state fund.

Among the factors that may trigger a further upgrade
of Ukraine’s rating are “tangible results from the establishment of new
anti-corruption bodies, … measures to enhance the integrity of the judiciary, …
and faster progress on reforming state-owned enterprises,” Moody’s said. Among
the possible negative triggers, Moody’s listed a decline in Ukraine’s foreign
reserves, a breakdown in IMF cooperation, backsliding on critical prior reforms
and an escalation of geopolitical tensions.

Alexander Paraschiy: With this
upgrade, Ukraine has gained a B category rating by Moody’s for the first time since September 2013, which is a
great achievement. Thus far, Ukraine’s ratings from the two other top agencies
remain one notch higher than from Moody’s. Echoing the IMF’s recent press
release, Moody’s highlighted the necessity for Ukraine to keep untouched its
major achievement of recent years, which is the central bank’s independence and
anti-corruption reform. We do not expect the government will act so recklessly
as to overturn these achievements.

It is now likely that Moody’s will upgrade the
ratings of the largest state banks, Ukreximbank (EXIMUK) and Oschadbank
(OSCHAD), to sovereign level.