S&P further downgrade of Cyprus sovereign on refinance fears

Standard and Poor’s has lowered Cyprus’ Sovereign rating by one notch to “BB” from “BB+” previously, maintaining its “negative” outlook saying that short-term financing pressures are rising and there is uncertainty over Cyprus’ ability to secure bilateral funds.
S&P added that “even with official assistance, which we view as vital if Cyprus is to avoid default, we believe the government will remain in a weak fiscal position due to a banking system that has been unable to cope without government support as a result of its exposure to Greek customers.”
S&P concluded by saying that the “CreditWatch” (negative outlook) reflects its view of the increasing short-term financing pressures on the Cypriot government, adding that it could further lower its rating if support is significantly greater than its current expectations, as this would raise public debt beyond what S&P currently estimates, or if it believes that the government will not be able to fulfil the program’s conditions.
The rating agency had suggested last month that Cyprus would need about 15 bln euros, nearly 100% of the island’s GDP and far more than the 10 bln euros the government claims it needs to bail out two banks and reduce its runaway budget deficit.
Cyprus received a 2.5 bln euro loan from Russia, based on commercial rates and is hoping to secure a second loan of 4.5-5 bln “soon”, government officials said this week.