December 18, 2013 / 2:11 PM / 4 years ago

UPDATE 1-Russian bailout could support Ukraine's rating

MOSCOW, Dec 18 (Reuters) - Russia’s financial support package for Ukraine, which amounts to $15 billion in bond purchases and a gas price discount, could support Ukraine’s non-investment grade credit rating, rating agencies said.

Russia agreed a $15 billion bailout for Ukraine and slashed the price of gas exports on Tuesday. The aid may substantially ease external pressures for Ukraine and offer support for its ‘B-’ rating, an S&P analyst said on Wednesday.

S&P cut Ukraine’s rating in November 2013, retaining a negative outlook.

“We will assess the terms and timing of the funds to be provided once we have more clarity on these issues,” S&P analyst Trevor Cullinan told Reuters in an email.

“Standard & Poor’s will also consider the implications for political stability of closer financial ties to Russia,” he said.

Ukraine needs money to cover an external funding gap of $17 billion next year - almost the level of the central bank’s depleted currency reserves - and to avoid defaulting on its debts.

On the markets, Ukraine’s dollar debt soared on the Russian bailout. “Near-term, Ukraine bonds are likely to trade very strong,” analysts at Bank of America Merrill Lynch said in a client note.

However the opposition and protesters were angered by the Russia-Ukraine deal, saying that Ukraine’s president Victor Yanukovich has sold the country out to its former Soviet masters in Moscow.

“Current political tensions and their potential impact on external liquidity are credit negative,” said Thorsten Nestmann, a senior analyst at Moody’s in an email to Reuters.

Moody’s has a lower rating for Ukraine - Caa1 - which denotes junk bonds. Nestmann added that the impact from the Russian bailout package on the Ukrainian economy is likely to be limited, as it does not suggest significant structural reforms.

“External liquidity was a key concern for the downgrade of Ukraine’s rating to Caa1 in September and its ongoing review for further downgrade - a relief in that respect would be credit positive”.

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