NICOSIA -- The stance of the new Cypriot president-elect and his government could make the country`s negotiations with the Troika for a rescue package less challenging than under the outgoing president, Fitch Ratings has said.
In a press release, Fitch says it believes the bailout programme is unlikely to include restructuring of the Cypriot sovereign debt, describing as highly unlikely the possibility of disorderly default, stemming from the government running out of cash before the June bond payment.
Excluded from international markets, Cyprus requested financial assistance from the European Stability Mechanism, after its two largest banks sought state aid following massive write downs of the Greek bond holdings as a result of the haircut of the Greek sovereign debt. The Cypriot authorities and the Troika agreed in principle on a Memorandum of Understanding containing the terms of the financial assistance programme estimated at €17.5 billion, which is equal to the country`s GDP. However the memorandum is yet to be signed.
"The stance of the new Cypriot president-elect and his government could make the country`s negotiations with the Troika for a rescue package less challenging than under the outgoing president," Fitch said.
Nicos Anastasiades, president of the right-wing Democratic Rally (DISY) party, won last Sunday’s presidential elections with 57.48% of the vote. He received 236.965 votes in the run off election. His rival Stavros Malas, backed by left wing AKEL party, secured 42.52% or 175.267 votes.
"Nicos Anastasiades has stated his intention to secure timely financial support, and now arguably has a mandate to conclude negotiations. He has already been building relations with leaders of key European partners, including Germany," Fitch said.
The agency adds however that "despite his overwhelming victory in the weekend`s elections he will face the same policy challenges as his predecessor, and there is still lingering uncertainty about the timing and details of an EU rescue programme."
Recalling that Fitch downgraded Cyprus to `B`/Negative in January, mainly because of its belief that bank recapitalisation costs are likely to be higher than previously thought, the agency noted that it expected that the authorities will reach agreement with the Troika on an official financing programme in time to pay a €1.4bn bond redemption on 3 June.
Fitch also noted that a bailout programme is unlikely to include restructuring of the Cypriot sovereign debt, because it would not provide significant debt relief, noting that it expects that the Cypriot government to privatise some state-owned enterprises as part of a final agreement with the Troika, "but there is uncertainty about how much debt relief this would achieve."
Fitch added however that "we would expect any restructuring of bank debt to be restricted to junior debt holders, though banks are mostly deposit financed, which limits the potential impact."
Concluding, Fitch said "we believe a disorderly default stemming from the government running out of cash before the June bond payment is highly unlikely."
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