Moody's downgrades Ukraine over political crisis

Puts the country on negative outlook

Rating firm Moody's has downgraded Ukraine's sovereign debt rating a notch, citing the country's escalating political crisis and concerns about whether it will continue to have Russian financial support.

Moody's cut the country's rating, already in speculative territory, to Caa2 from Caa1, and put the country on "negative outlook," signaling it could be downgraded again in the medium term.

The first driver for the downgrade "is the escalation and increasingly violent nature of the crisis that began with peaceful public protests in the capital city of Kiev in November 2013," Moody's Investors Service said in a statement.

"The hardened positions between the government and the opposition and the spread of anti-government protests to the country's western regions have increased the likelihood of a severe administrative crisis, potentially involving a power vacuum and protracted political uncertainty."

Moody's cited as a second factor the increased risk of a sharp rise in external financing needs as people snap up foreign currency, which has sent the local currency tumbling.

"While the Ukrainian central bank's ability to manage a currency depreciation may continue to benefit from the Russian support package, the escalation of the crisis has increased the risk of a large-scale conversion to foreign currency," the rating firm said.

Thirdly, it cited questions over Russia's earlier promise to help the government financially.

"If a potential regime change were to lead to a rapprochement of Ukraine with the European Union, Moody's believe that the Russian authorities' willingness to disburse the remainder of the promised $15 billion support package will be sharply reduced," it said.

In November, Ukrainian President Viktor Yanukovych scrapped an integration deal with the EU in favor of closer ties with Kiev's historical master Moscow, sparking huge protests.

The unrest has since spiraled into an uprising demanding the president's removal.

The Moody's rating blow came after Yanukovych yesterday repealed controversial anti-protest laws that were passed earlier this month, radicalizing the anti-government movement.

On Tuesday, rating firm Standard & Poor's downgraded Ukraine one notch from B- to CCC+ citing "political instability".