Wednesday, October 5

Ukraine Latest: Kyiv Debt Downgrade; Kremlin Braces for Long War


Ukraine was downgraded to default scores by both S&P Global Ratings and Fitch Ratings after the majority of the country’s bondholders agreed to defer debt payments for two years. Data on Friday showed Russia’s GDP shrank 4% in the second quarter, a decline that was less deep than feared.

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(Bloomberg) — Ukraine was downgraded to default scores by both S&P Global Ratings and Fitch Ratings after the majority of the country’s bondholders agreed to defer debt payments for two years. Data on Friday showed Russia’s GDP shrank 4% in the second quarter, a decline that was less deep than feared.  

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Russia is gearing up for a prolonged war in Ukraine, according to the think tank Institute for the Study of War. A new budget is reportedly on tap to boost spending by some $10 billion.

A senior US military official, speaking to reporters on condition of anonymity, said the US still doesn’t know what weapons were used in an attack Tuesday on a Russian airbase in Crimea. The official said surveillance aircraft and munitions were destroyed in the attack on the Saky base.

(See RSAN on the Bloomberg Terminal for the Russian Sanctions Dashboard.)

Key Developments

  • Putin’s War Sends Russian Economy Back to 2018 in Single Quarter
  • Ukraine Downgraded to Default by S&P, Fitch After Debt Delay
  • Crimea Base Blast Deals Blow to Russia’s War Machine in Ukraine
  • Russia Visa Ban in EU Wins Key Backing From Czech Presidency
  • Turkey Boasts of Russia Trade Boom, Defying Push for Sanctions

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On the Ground

Russia’s invasion of Ukraine is nearing the six-month mark, and its troops continue to concentrate on their bid to establish full control over Luhansk and Donetsk. Russian armed forces continued shelling in the vicinity of the strategic eastern cities of Slovyansk and Kramatorsk as well as other targets, the Ukrainian military said Saturday. Two civilians died and 13 others were wounded in a Russian strike in Kramatorsk, the governor of Donetsk, Pavlo Kyrylenko, said on Facebook. The UK said two primary road bridges that provide access to Russian occupied territory on the west bank of the Dnipro River in the Kherson region are probably unusable now.

(All times CET)

Kremlin to Mobilize Industry for Prolonged War: ISW (8 am)

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The Kremlin is reportedly attempting to mobilize industry to support prolonged war efforts in Ukraine, the Institute for the Study of War said, citing Ukrainian intelligence.

Russia’s government in early August banned some employees and the entire leadership at the state industrial conglomerate company Rostec from taking vacations, the US military think-tank said in a report.

Russia’s Military-Industrial Commission, which President Vladimir Putin chairs, is preparing to change the state defense order program by early September to increase spending by about $10 billion, ISW said.

UK Says Key Bridges in Kherson Region ‘Probably Out of Use’ (7:40 am)

The two primary road bridges giving access to Russian occupied territory on the west bank of the Dnipro River in the Kherson region “are now probably out of use for the purposes of substantial military resupply,” after precision strikes by Ukrainian forces, the UK defense ministry said in a Twitter thread.

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“With their supply chain constrained, the size of any stockpiles Russia has managed to establish on the west bank is likely to be a key factor in the force’s endurance,” the UK said.

Separately, ISW said a strike on Wednesday “destroyed the last functioning bridge” Russian forces use to transport military equipment near the Kakhovka hydroelectric plant.

Ukraine Downgraded to Default After Debt Delay (00:23 am)

Ukraine was downgraded to default scores by both S&P Global Ratings and Fitch Ratings after the majority of the country’s bondholders agreed to defer debt payments for two years.

The war-torn nation’s foreign-currency rating was lowered to “selective default” — or SD — from CC by S&P on Friday. Fitch followed shortly after with a downgrade of its own, cutting Ukraine to “restricted default” — or RD — from C. The moves follows the approval of a debt-restructuring plan that could save Ukraine about $5.8 billion.

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US Potash Prices Fall as Russian Exports Flow (7:55 pm)

Potash prices in the US continue to fall, despite Canadian producers saying supply will remain tight amid the war in Ukraine. Cheaper fertilizer means lower costs of production for crops.

Fertilizer sales have so far escaped bans levied against other Russian commodities, and exports are making it out of the country.

Russia’s GDP Shrinks 4% in Second Quarter (6 pm)

Vladimir Putin’s invasion of Ukraine set Russia’s economy back four years in the first full quarter after the attack. Data on Friday showed GDP shrank for the first time in over a year, although the 4% drop was not as severe as forecast.

The central bank published a draft of its policy outlook for the next three years, predicting the economy will take until 2025 to return to its potential growth rate of 1.5%-2.5%. Projections for 2022-2024 remained unchanged, with GDP forecast to shrink 4%-6% and 1%-4% this year and next, respectively.

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“The economy will move toward a new long-term equilibrium,” Bank of Russia Deputy Governor Alexey Zabotkin said at a briefing in Moscow. “As the economy undergoes a restructuring, its growth will resume.”

US Official Says No Immediate Threat to Zaporizhzhia Plant (7:28 pm)

The senior US military official who spoke Friday said there is no immediate threat to a nuclear plant in Russian-occupied Zaporizhzhia but that could change at any moment.

Russia continues to engage in indiscriminate artillery fire in Ukraine, the official said. Earlier, the Russian envoy to international organizations in Vienna, Mikhail Ulyanov, said a mission to the nuclear plant led by International Atomic Energy Agency chief Rafael Grossi can’t take place before the “end of August or early September,” according to an interview with the Izvestia newspaper.

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The IAEA, the United Nations’ nuclear watchdog, has warned of a “real” risk of nuclear disaster at Zaporizhzhia because of repeated strikes near the facility in recent days. Russian invasion forces took over the power station in March, though it continues to be operated by Ukrainian workers. Each side in the war accuses the other of targeting it.

Druzhba Pipeline to Resume Oil Flow to Czech Republic (4:53 pm)

The supply of Russian oil to the Czech Republic via the Druzhba pipeline will resume on Friday around 8 pm local time, according to an emailed statement from Slovak pipeline company Transpetrol.

Russian crude flows through Ukraine to Hungary, Slovakia and the Czech Republic were halted because sanctions prevented payment of a transit fee. Supplies for Hungary and Slovakia restarted two days ago.

Russia Visa Ban in EU Wins Key Backing From Czech Presidency (2:46 pm)

The Czech Republic will put a proposal for a broad ban on visas issued to Russian citizens at an EU foreign ministers meeting later this month.

Czech Foreign Minister Jan Lipavsky said his government will seek consensus on the measure, which so far has gained little traction outside of the EU’s Baltic members, at a meeting of the bloc’s foreign ministers later this month. German Chancellor Olaf Scholz signaled Thursday he wouldn’t t support it.

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