Standard & Poor’s has downgraded Ukraine’s long-term sovereign debt rating to “SD”, meaning partial default, after Kiev failed to pay part of its euro-denominated bonds that matured on Thursday.
The agency said in a statement on Friday that “Ukraine intends to launch a formal restructuring process for some of its euro-denominated bonds through an exchange offer.”
The agency added that the government had decided to suspend payments on the bonds in question before the restructuring, and therefore did not pay its tranche of Eurobonds that matured on Thursday. The agency continued in its statement: “We do not expect payment to be made within the contractual grace period for the bonds of 10 business days.”
On July 22, Ukraine announced that it had reached a preliminary agreement to restructure part of its debt, worth $20 billion.
The Ukrainian Finance Ministry had previously announced that Kyiv had reached an “agreement in principle” with a group of its international private sector creditors to restructure 13 series of euro-denominated bonds.
This restructuring will save the state treasury a total of $11.4 billion over the next three years and $22.75 billion until 2033.
“The released funds will support Ukraine’s overall financial stability, which will allow us to finance the most urgent needs to counter the Russian invasion,” Finance Minister Serhiy Marchenko said at the time.
Prime Minister Denys Shmygal noted that restructuring Ukraine’s debt “will free up these resources for defense, social spending and reconstruction.”
In its statement, Standard & Poor’s said it would not hesitate to upgrade Ukraine’s rating again if it completed its debt restructuring or if Ukraine resumed paying its defaulted bonds, rather than exchanging the debt.
On July 24, Fitch downgraded Ukraine’s long-term debt rating by one notch to ‘C’.
Ukraine has received significant international financial support since the outbreak of war with Russia in 2022, but Kiev has still had to borrow to finance its defense needs, maintain public services, pay civil servants’ salaries, and secure the needs of those displaced by the war.
In June, Prime Minister Denys Shmyhal said Ukraine had signed 20 security agreements with its international allies, including pledges of $60 billion in annual military aid over the next four years, for a total of $240 billion.
