S&P declares Ukraine in 'selective default'

The New York-based credit rating agency Standard & Poor's (S&P) said on Friday that Ukraine's foreign currency rating was lowered after the debt-stricken country invited "commercial bondholders to participate in a series of debt buyback auctions."

"In Ukraine's case, the deviation was prompted by the launch of what we consider to be a distressed debt restructuring," S&P said in its report.

The move means the American credit rating agency does not believe Ukraine will be able to fully pay back its debt to commercial bondholders.

The country's bondholders are expected to attend a meeting on October 14 to vote on whether they will accept the offer, which would witness a 20 percent "haircut" from the money they are owed. S&P said only foreign currency ratings were affected, as Ukrainian sovereign debt in its own currency, the hryvnia, is excluded from the October talks.

S&P also noted that it would upgrade the country's rating if the negotiations were successful.

The International Monetary Fund (IMF) had welcomed Ukraine's decision, with the financial institution's managing director, Christine Lagarde, saying it was a positive sign towards unlocking funds from a loan amounting to $17.5 billion (15.7 billion euros).

"High participation by all concerned Eurobond holders in the upcoming debt exchange is paramount, since Ukraine lacks the resources under the program to service it debts on the original terms," Lagarde said in a statement earlier this month.

"I call on all creditors to support this offer," Lagarde added.

However, a smaller group of investors reportedly refused to participate in the talks, including Aurelius Capital Management, infamous for their legal attempts to forcefully extract cash from Argentina.

Aurelius Capital is particularly upset with the decision as it means its holdings, due to mature later this year, would not do so until at least 2019.

ls/msh (AFP, Reuters)