Fitch downgrades Greece rating to B+

PARIS: Fitch Ratings on Friday slashed Greece's credit ratings by three notches to B+ due to the massive challenges of correcting the country's finances but said it expects Athens to get more help and avoid restructuring its debt

‘The rating downgrade reflects the scale of the challenge facing Greece in implementing a radical fiscal and structural reform programme necessary to secure solvency of the state and the foundations for sustained economic recovery,’ Fitch said in a statement.

Although there has been increased talk within the eurozone about extending the repayment of Greek debt, Fitch said it expects that Athens will obtain a fresh bailout and make repayments on time.

‘The 'B+' rating incorporates Fitch's expectation that substantial new money will be provided to Greece by the EU and IMF and that Greek sovereign bonds will not be subject to a 'soft restructuring' or 're-profiling' that would trigger a 'credit event' and default rating from Fitch,’ it said.

The ratings agency said it would consider an extension of the maturity of existing bonds to count as a default and that it would adjust its ratings accordingly.

Greece received a 110-billion-euro ($156-billion) bailout from the EU and IMF last year but it was planned that the country would begin to return to the markets next year to refinance part of its massive debt.

With markets now asking over 25 percent interest on two-year Greek bonds, that looks increasingly unlikely and the EU and IMF have been looking at helping Athens meet an expected gap of around 60 billion euros.

But with Athens not making sufficient progress on cutting its deficit, there has been increased talk -- even by European officials -- that Greece will not be able to keep on top of its debt of around around 340 billion euros.

‘New money is required in order to address the fiscal funding shortfall that would otherwise emerge in 2012,’ said the ratings agency.

‘Fitch expects the uncertainty regarding the volume and terms of new money, as well as the role of private creditors, to be resolved with the completion of the current fourth review of Greece's EU-IMF programme expected in the latter half of June.’

Fitch also expressed concern about requiring -- as Germany wants -- sovereign bond investors to accept losses when countries tap the eurozone future bailout mechanism, the European Stability Mechanism.

Such a development would ‘adversely impact financial stability across the euro area,’ Fitch said.

The ratings agency kept Greece on watch for further downgrade and said it would reconsider such a move following the latest EU-IMF review of Greece's performance and when new money for Athens is decided.

Fitch said it believes ‘additional financial support for Greece would only be credible in providing a path to solvency if it is fully funded beyond the end of the current programme of mid-2013,’ which implied significant additional financing.