Fitch downgrades Belarus’ long-term rating to 'limited default’

The international rating agency Fitch Ratings has downgraded the long-term issuer default rating (IDR) of Belarus in foreign currency to „RD” (limited default) from „C”, the agency said.

“After the 14-day grace period for coupon payments on 2027 Eurobonds expired on July 13, we downgraded the long-term foreign currency rating of Belarus to 'RD’, and the rating of these bonds to 'D’,” the agency’s analysts say.

The country’s Ministry of Finance, the Council of Ministers and the National Bank of Belarus announced on June 29 that payments on Eurobonds in US dollars will be transferred in Belarusian rubles to an account with Belarusbank, available to the paying agent.

Fitch’s announcement emphasizes that the national currency payment „contradicts the bond’s documentation, which does not allow for settlements in alternative currencies.” According to this documentation, the payment was not made after the grace period expired.

At the same time, Belarus’ Long-term IDR in national currency was maintained at 'CCC’, while Belarus’ Short-term IDR in national and foreign currencies remained at 'C’. The Country Ceiling remained at 'B-’.

On July 7, in connection with the payment of a coupon on Belarus-27 Eurobonds in Belarusian rubles, Fitch downgraded Belarus ’ foreign currency IDR to 'C’ from 'CCC’ and warned that if payments on this issue were not made in accordance with the original terms by 13 July, It will treat this as a default and will downgrade Belarus’ IDR to 'RD’ (Restricted Default) and downgrade this Eurobond issue to 'D’.

On July 14, Moody’s agency stated that it considers the coupon payment on Eurobonds in the national currency to be a default. „The payment of foreign currency debt in Belarusian rubles is a default,” the agency said in a statement.

The Belarusian Ministry of Finance called this decision a provocation.

On July 15, S&P Global Ratings did not downgrade Belarus’ ratings and affirmed its long-term and short-term foreign currency ratings at 'CC/C’, keeping them on the CreditWatch list (under review) with a 'negative’ outlook. At the same time, the agency warned: „Foreign currency ratings remain on CreditWatch with a 'negative’ outlook, which indicates that we may downgrade them to 'SD’ (pre-default level – IF) if the coupon payment on Eurobonds maturing in 2027 year will not be produced in US dollars by the end of the 30-day grace period (tentatively the end of July – IF) specified in the terms of the bonds.

On June 29, the Ministry of Finance of Belarus officially announced that Belarus had made a payment on Eurobonds Belarus-2027 in Belarusian rubles, taking into account the adopted joint resolution of the government and the National Bank, which allows the payment of interest payments on Eurobonds in Belarusian rubles.

The Ministry of Finance transferred the amount in Belarusian rubles to a special account in Belarusbank and offered the paying agent to independently withdraw funds from this account and pay off investors.

In turn, the paying agent and registrar of Citigroup and Citibank on July 7 refused to be agents in respect of Belarusian Eurobonds. The Ministry of Finance is currently looking for alternative payment agents.

The Ministry of Finance emphasizes that the essence of the problem lies in the fact that Western settlement and clearing systems, due to the sanctions imposed by the EU and the United States, cannot actually fulfill their obligations to transfer funds to holders of Belarusian Eurobonds in full.

The issue of 10-year Eurobonds Belarus-27 for $600 million with a yield of 7.625% per annum was placed in June 2017. In parallel, the Ministry of Finance placed 5-year Eurobonds for $800 million at 7.125% per annum with maturity in February 2023. The deal was arranged by Citi and Raiffeisen Bank.

Currently, there are 5 issues of Belarusian Eurobonds in circulation for a total of $3.25 billion. The last time Belarus entered the Eurobond market was in June 2020, when it placed 5-year Eurobonds for $500 million at 6.125% and 10-year Eurobonds for $750 million at 6.375%. The placement was organized by Citi, Societe Generale, Raiffeisen Bank and Renaissance Capital. In the structure of the investor base, more than 50% accounted for US residents.

Ethan Andrews

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