Moody’s downgrades three Ukraine bond issuers to country level

Moody’s Investors Service downgraded the Eurobonds of steel producer Metinvest (METINV), poultry producer MHP (MHPSA) and utility holding DTEK (DTEKUA) to Caa1 from B3, the agency reported on September 24. The reason is the prior-day downgrade of Ukraine’s foreign-currency bond country ceiling to Caa1, Moody’s said. At the same time, the agency noted that the business profiles and financial metrics of the affected companies are strong for a Caa1 rating, and they could have a higher rating if not for the country ceiling.

Moody’s kept unchanged the rating of iron ore producer Ferrexpo (FXPOLN), which it downgraded to Caa1 in December 2012.

Alexander Paraschiy: The market fully anticipated the downgrade, and the yields of the affected bonds had already increased 1.3-3.0pp since September 20, when Moody’s downgraded Ukraine’s sovereign rating. Now we expect the agency will downgrade other covered Ukraine bond issuers, including Ukreximbank (EXIMUK), Oschadbank (OSCHAD), Privatbank (PRBANK) and PUMB (PUMBUZ), who still have a rating above Moody’s new ceiling. There is also a risk that Moody’s will downgrade further the Eurobonds of VAB Bank and Finance & Credit Bank, which had a rating one-notch lower than the sovereign.

So far, the lucky ones eluding a downgrade are Avangard (AVINPU), Mriya (MRIYA), Ukrlandfarming (UKRLAN) and Naftogaz of Ukraine (NAFTO), which are not covered by Moody’s but by the two other authorities, Fitch and Standard & Poor’s. They are keeping their Ukraine rating at “B” level, though we don’t rule out revisions in the coming weeks.