Friday, 20 September 2019 10:37 GMT

S&P cuts Greece rating into vulnerable to default range

(MENAFN - AFP) Standard and Poor's on Wednesday cut its long-term credit rating for Greece by one notch to CCC+, a level at which borrowers are considered as being vulnerable to default, saying it needs further reforms and help.

"Without deep economic reform or further relief, we expect Greece's debt and other financial commitments will be unsustainable," said the agency, adding that the outlook on the rating was negative.

Negotiations between Athens and its EU-IMF creditors are hurtling towards an April 24 deadline as the Greek government's coffers are emptying fast.

Athens desperately needs a deal to unlock 7.2 billion euros ($7.6 billion) -- the last tranche of a 240-billion-euro bailout accorded in 2010 -- but the EU and IMF want better reforms from Greece.

The downgrade "reflects our view that Greece's solvency hinges increasingly on favourable business, financial, and economic conditions," said S&P.

"In our view, these conditions have worsened due to the uncertainty stemming from the prolonged negotiations between the almost three-month-old Greek government and its official creditors."

The Greek economy had begun to turn around last year, but early elections that brought the radical left Syriza party to power on an anti-austerity in January caused uncertainty.

Instability has continued since, given Syriza's failed attempt to jettison the bailout deal for a new arrangement with less onerous conditions attached.

S&P said it believes that the uncertainty helped lead to a contraction in the Greek economy of one percent over the past six months despite positive effects from low oil prices and a weaker euro.

"In our opinion, economic prospects could deteriorate further unless talks between Greece and its creditors conclude soon," said S&P.

The ratings agency said Greece must repay 2.4 billion euros in maturing treasury bills this week, with one third held by non-residents it believes unlikely to roll them over.

It said it expects the Greek government to lean on insurance companies and domestic mutual funds to increase their holding of state debt.

"If this assumption does not hold, the government could fail to achieve its borrowing requirement, leading to a default on sovereign debt, including treasury bills," said S & P.

Greece must repay around 1 billion euros to the IMF in the first half of may. It owes 9 billion euros to the ECB in July and August.

S&P warned a deal by mid-May was necessary to give the Greek parliament sufficient time to enact the agreed measures and the 7.2 billion euros in bailout funds by late June.

It added that under its rules, a missed payment to an official creditor would not a constitute a trigger to move Greece's rating to "Selective Default", but would likely be an added negative factor in its analysis.

A missed payment to a commercial creditor would trigger a default rating, but S&P noted that redemption of medium- and long-term debt owed to the private sector totals less than 500 million euros this year.

Despite the rising risk of a default, S&P said it still does not see a euro exit for Greece as the most likely outcome.

"A Greek exit from the eurozone is not our base-case scenario," it said.

S&P cuts Greece rating into vulnerable to default range

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