ATHENS (Reuters) - Standard and Poor’s cut Greece’s credit rating further into junk territory on Monday, reflecting growing doubts that the euro zone’s most fragile economy can manage its debt without imposing losses on private bondholders.
One year into an international bailout, Greece is struggling with weak revenues and a deep recession, fuelling speculation that even a more lenient rescue deal with the European Union and International Monetary Fund won’t be enough to pull it out of the fiscal mess that triggered the euro zone’s crisis.
“In our view, there is increased risk that Greece will take steps to restructure the terms of its commercial debt, including its previously-issued government bonds,” the agency said in a statement, warning that more downgrades could come.
The euro hit its lowest level against the dollar in nearly three weeks on Monday after Standard and Poor’s cut Greece’s debt rating to B, one notch above Pakistan’s. European shares also extended falls in afternoon trade.
Moody’s said it might cut its Greek rating by more than one notch while at the third major rating agency, Fitch, analyst Chris Pryce told Reuters the agency was “actively reviewing” Greece’s rating.
S&P said its decision to cut Greece’s rating was triggered by the likelihood that euro zone countries would want private holders of Greek government debt to extend bond maturities, accepting later repayments, now that governments are under pressure to ease their terms on the bailout that saved Greece from bankruptcy last year.
It said its projections suggest that reductions, known as a haircut, of between 50 and 70 percent of the bonds’ original value could be needed to make Greece’s debt burden sustainable.
Analysts said the S&P cut was likely to mostly affect Greek banks.
“Banks are more affected (than other companies) by the country’s credit rating downgrade, given that cuts in their own ratings are likely to follow,” said analyst Nikos Galousis at Kappa Securities.
Such cuts could reduce the amount of Greek bank bonds rated by S&P that are eligible for use as collateral for loans, “but the impact will be small as such bank bond issues are mainly rated by Fitch,” he said.
Greek debt is rated junk by all three major rating agencies. All other euro zone countries have investment grades only.
Monday’s rating puts S&P’s rating of Greece one notch below Moody’s B1 grade and four notches below Fitch’s BB+ rating. Both have warned that more downgrades could come.
Greece criticized S&P’s decision, as it has done with several rating cuts over the past months.
“Credit rating decisions should be based on objective data, policy-makers’ announcements and realistic assessments of the conditions facing an economy. Not on market rumors and press reports,” the Finance Ministry said in a statement.
“When such decisions are based simply on rumors, their validity is seriously cast in doubt,” it said.
Additional reporting by George Georgiopoulos; Editing by Ruth Pitchford