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Fears rise that Cyprus could default

Wednesday, February 20 12:10:01

Cyprus faces a "material and rising risk" of defaulting on its sovereign debt, especially if the euro zone and International Monetary Fund do not come up with aid, rating agency Standard and Poor's said today.

Crippled by its exposure to Greece, Cyprus needs 17 billion euros from the euro zone to recapitalise its banks and to finance the government over the next three years.

S and P's comments come as the island gears up for a runoff presidential election on Sunday pitting a conservative in favour of a swift bailout deal against a Communist-backed candidate who supports a bailout but with fewer harsh austerity measures.

"We see at least a one-in-three chance that we could lower the Cyprus sovereign ratings again in 2013, for example if official financial assistance from the (European bailout fund) ESM and/or IMF is not forthcoming, leaving the Cypriot authorities few choices apart from to restructure its financial obligations," S and P's head of EMEA sovereign ratings Moritz Kraemer said in a report.

"We could also lower the ratings if we believe the (Cypriot) authorities are not able to fulfill the conditions that would be attached to an official assistance programme."

S and P currently rates Cyprus at CCC+, well into non-investment grade "junk" bond territory, with a negative outlook.

Cyprus asked for international aid eight months ago after its banks suffered huge losses on exposure to a restructuring of Greek sovereign debt and due to difficulties in accessing international capital markets shut to it because of fiscal slippage since mid-2011. Reuters