[QODLink]
Europe

Moody's downgrades Cyprus by three notches

International credit rating agency cites anticipated increase in the government's debt burden.
Last Modified: 11 Jan 2013 01:34
Moody's downgraded Cyprus's rating nine notches in the last 10 months, amid the European sovereign debt crisis [AFP]

International credit rating agency Moody's has announced that it downgraded Cyprus's government bond rating by three notches to middle-range junk bond status, citing the anticipated increase in the government's debt burden.

The downgrade on Thursday from B3 to Caa3 was driven by the further increase in the amount of government support that Cypriot banks are likely to require.

"Given that the resulting increase in the debt burden is likely to be unsustainable, Moody's believes there is a significantly increased likelihood that the Cypriot government may eventually default outright or press for a distressed exchange," Moody's said.

Moody's says more downgrades are possible for the country that is trying to finalise a bailout with international lenders to rescue its banks, which sustained massive losses on bad Greek debt and loans.

The agency said that it believes that there is a "significantly increased likelihood" that Cyprus may default outright or seek for its debt to be written down, but doesn't foresee that happening this year.

It added however that its base case "does not assume a default or distressed exchange in 2013".

Moody's now estimates that the bank recapitalisations will be about 10 billion euros ($13.11 billion), which equates to more than 50 percent of GDP. That could take Cyprus' ratio of debt to GDP to 150 percent in 2013, which "would be one of the highest levels in Moody's rating universe," Moody's said.

Persisting crisis

Moody's also placed Cyprus's debt on "negative" outlook citing liquidity concerns, the bank recapitalisation needs and the delay in negotiations with the "troika" of the European Commission, the European Central Bank and the International Monetary Fund on a package of aid to resolve the country's liquidity crunch.

In total, Moody's has downgraded Cyprus's rating nine notches in the last 10 months, as the European sovereign debt crisis has persisted.

Earlier this week, Panicos Demetriades, Cyprus Central Bank governor, met eurozone ambassadors to explain reform and restructuring plans for the troubled banking sector.

Eurogroup finance ministers could decide as soon as January 21 on a draft agreement with international lenders for a bailout reportedly totalling 17.5 billion euros ($23.1bn).

Cyprus has already pushed through tough austerity measures to meet the demands of eurozone creditors for more than one billion euros in cuts and savings.

377

Source:
Agencies
Topics in this article
People
Country
Organisation
Featured on Al Jazeera
Italy struggles to deal with growing flood of migrants willing to risk their lives to reach the nearest European shores.
Israel's Operation Protective Edge is the third major offensive on the Gaza Strip in six years.
Muslims and Arabs in the US say they face discrimination in many areas of life, 13 years after the 9/11 attacks.
At one UN site alone, approximately four children below the age of five are dying each day.
Featured
The conservative UMP party suffers from crippling internal divisions and extreme debt from mismanagement.
More than fifty years of an armed struggle for independence from Spain might be coming to an end in the Basque Country.
After the shooting-down of flight MH17, relatives ask what the carrier has learned from still-missing MH370.
Human rights and corporate responsibility prompt a US church to divest from companies doing business with Israel.
Afghan militias have accumulated a lengthy record of human-rights abuses, including murders and rapes.
join our mailing list