S&P report puts €15 bln price tag on Cyprus support package
Tue Jul 17, 2012 9:23pm IST
July 17 - Standard & Poor's Ratings Services said in a report published today that it estimates that a financial support program for Cyprus could likely total upwards of EUR15 billion. Cyprus formally applied for financial support from its EU partners last month, becoming the fifth member in the European Economic and Monetary Union (EMU or eurozone) to do so. Over the past two years, Standard & Poor's has downgraded the Republic of Cyprus (BB+/Negative/B) a total of six notches. As reasons for the rating actions, we cited potential write-downs arising from Cypriot banks' exposures to the Greek public and private sectors, as well as delays in the consolidation of public finances. Faced with the need to recapitalize the largest two Cypriot banks and a testing government debt maturity profile, Cyprus is now negotiating a support package to address its financial obligations. We estimate Cyprus' total financial requirements over a three-year period at about EUR11 billion, or 61% of GDP. However, considering the uncertainty in Greece, and buffers applied in other programs--Ireland and Portugal, for example--we believe the total size of a program would likely be upwards of EUR15 billion, as stated in our report, "Cyprus' Support Package Could Total Upwards Of EUR15 Billion Through 2014." To arrive at that estimate, we assessed the total cost of bank recapitalization at EUR2.3 billion to meet the European Banking Authority requirement. If we add that to our base-case estimate for additional potential credit losses in 2012 and 2013 of EUR2.18 billion, we come up with EUR4.48 billion or 25% of GDP. To that, we added EUR6.59 billion of additional financing needs in 2012-2014, which includes our estimates of the underlying budget deficit plus the amount of government debt maturing. Finally, we calculate the annual budget impact of the above financial assistance, and find that it is of similar size to its annual output. (In line with our treatment for other sovereigns, we include recapitalization funds as an increase in the government's debt stock and a corresponding increase in government expenditure.) Deep-rooted structural changes to the economy therefore appear to us necessary if future prosperity is to be assured. To this end, we expect that an agreement with the troika will act as a strong anchor. Likewise, the prospects of commercial gas extraction could provide a needed boost to investment and overall growth as well as to current account receipts in the coming years. However, we expect a number of hurdles to remain--as is the case in the four other eurozone programs. With bilateral lending unclear and the prospects of troika disbursements a few months away, pressure on short-term financing will likely increase. We also expect that the government will have to give in on a number of politically sensitive measures to secure a package of sufficient size, increasing the focus on presidential elections early next year. Protecting an advantageous tax environment may prove more difficult than foreseen. Ultimately, we believe that securing a bailout package is only one of the challenges currently facing Cyprus. The report is available to subscribers of RatingsDirect on the Global Credit Portal at http://www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to [email protected]. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at http://www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
http://in.reuters.com/article/2012/07/1 ... 1620120717
Well there goes the gas revenues!
