RUXX Advisory: Ukraine Credit Rating Might Be Cut Further After Anti-Banking Ruling

NEW YORK, Nov. 6, 2013 /PRNewswire/ -- Ukraine's sovereign credit rating may be cut further following the November 2013 downgrade after a series of anti-banking court rulings, according to the RUXX index report.

As recently as November 1, S&P downgraded Ukraine's long-term debt to B-, stating that the "government is unlikely to secure sufficient foreign currency to meet the country's elevated external financing needs." Amid the financial instability in the country, Ukrainian courts have made unorthodox rulings that may further harm the domestic financial system and lead to capital flight.

"Ukraine's top arbitrage court made a ruling against Prominvestbank, one of the leading Ukrainian banks owned by Russia's Vnesheconombank. The court basically denied the bank a right to collect an unpaid $75 mln secured debt from a major food retailer, TS Obzhora. The ruling raised concern because several other major debtors are now using the court's decision as precedent in an attempt to avoid repayment of loans," says Michael Thompson, senior analyst for RUXX Index that tracks Russian equities and recently initiated coverage of all former USSR countries. "If the court's ruling stands, we expect major credit crunch in Ukraine as banks will avoid giving out loans," adds Thompson.

The court's decision against Prominvestbank might be political as it took place during a bitter conflict between Russia and Ukraine, which considers opening up its borders to the EU and breaking an alliance with Russia. "The owner of TS Obzhora, Vyacheslav Sobolev, is considered a businessman with strong ties with the Ukrainian government. Sobolev's father-in-law, Boris Spiegel, a former member of the Russian Senate, is currently one of the top Yanukovich's advisors, and family ties in both Russia and Ukraine are hugely important," comments Thompson. "Mr. Spiegel represents a group of top Russian businessmen who are now moving to Ukraine amid the political conflict with their home country."

"We believe that the 'Institutional and governance effectiveness' component of the S&P country rating and 'Institutional strength' of Moody's are likely to be affected by this court ruling if other debtors will use it as precedent and we expect further capital flight from Ukraine," states RUXX research note that was sent to analysts today.

CONTACT: John Foley, +1 347-708-0336, [email protected]

SOURCE RUXX Index