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Moody’s: Cyprus vulnerable to ‘major restructurings’

CYPRUS is vulnerable to “major restructurings” of its debt over the coming years, Moody’s Investors’ Service has said.

Financial news portal Stockwatch reported last night that Moody’s had issued a note which continued projecting Cyprus’ debt to peak at about 140 per cent in 2016, an estimate higher than that of its bailout programme.

“…Cyprus’ very substantial economic and financial challenges threaten public finances sustainability and may necessitate further debt restructurings”, Moody’s was quoted as saying.
Moody’s said the island’s economy would continue to contract with the recession continuing for another two years. It also said they had a “limited expectation” of offshore gas fields contributing to growth.

Moody’s said Russia’s agreement to restructure its €2.5 billion loan to Cyprus saved the government some €160 million, an estimated reduction in interest expenses of less than 1.0 per cent of the country’s 2012 GDP over 2013-16.

“Cyprus’ Liquidity Benefits from Russian Loan Restructuring, but Re-Default Remains Probable”, Moody’s said.

“The Russian government’s loan restructuring agreement moves Cyprus closer to meeting the burden-sharing measures mandated in the adjustment programme underlying the European Commission, European Central Bank and International Monetary Fund (i.e., the Troika) bailout,” Moody’s said.

Russia agreed in late August to reduce the interest rate to the loan, made in late 2011, from 4.5 per cent to 2.5 per cent until 2016, and to reschedule repayment from 2016 to eight semi-annual instalments of the same size from 2016.

The decision reduces Cyprus’ financing needs in 2016, reducing the risk of a liquidity shortage immediately after the troika programme ends.

But Moody’s added that troika’s adjustment programme originally assumed repayments of the Russian loan would take place later, during 2018-2022, a more favourable schedule than the one agreed on.

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