Ukraine Seen Blinking by JPMorgan as Bonds Surge Most Worldwide
Ukraine’s insistence its creditors must accept a writedown is being met with skepticism from JPMorgan Chase & Co. and Morgan Stanley amid the world’s best bond rally.
JPMorgan said on Monday its base case is that Ukraine won’t impose a writedown. The International Monetary Fund will probably continue funding the country even if its debt-restructuring targets aren’t met, Morgan Stanley said on Wednesday. Ukraine’s dollar bonds have soared 19 percent this month through Wednesday, the most among 59 emerging markets tracked by Bloomberg, after some securities fell below 40 cents on the dollar.
Ukraine must save $15.3 billion in debt-servicing costs over four years to qualify for the next slice of a $17.5 billion IMF bailout in a review scheduled for June. Finance Minister Natalie Jaresko insisted Tuesday that a writedown was the only way to meet IMF targets.
“Current market pricing assigns a high probability that bondholders hold the upper hand in the bondholder talks, and Ukraine and the IMF will give in to their demands to avoid a debt default,” Alina Slyusarchuk, a London-based economist at Morgan Stanley, wrote in an e-mailed report Wednesday. “Even in case of a failure to reach the agreement by the IMF second review, we think the IMF is likely to continue lending to Ukraine.”
Ukraine needs cash after a yearlong conflict with pro-Russian separatists in the country’s east drained reserves to a record $5.6 billion in February and pushed the economy into a second year of recession.
Three Targets
This month’s rally was spurred, in part, by a pledge from Ukraine’s third-largest bank to grant creditors higher coupon payments and pay the principal in full as it negotiated a temporary maturity extension on notes that came due on Monday.
Analysts at Citigroup Inc., Nomura Holdings Inc. and Landesbank Berlin AG, said this week that the favorable terms set out by State Import-Export Bank of Ukraine won’t set a precedent for the sovereign restructuring.
Ukraine has three targets mandated by the IMF, of which only the first was applied to state-owned companies like Ukreximbank. The first relates to the $15.3 billion of savings over four years. The second is to bring the ratio of public and publicly guaranteed debt-to-gross domestic product to below 71 percent by 2020, while the third seeks to keep the budget’s gross financing needs at an average of 10 percent of GDP in the 2019-to-2025 period.
Writedowns ‘Critical’
“It would be a massive issue at the IMF if they agreed to an extension instead of a haircut after convincing everyone two months ago that haircuts are necessary,” Vadim Khramov, an emerging-market economist at Bank of America Merrill Lynch in London and a former adviser to the executive director of the IMF, said by phone on Wednesday. “Ukraine would prefer to default than to proceed with a deal that has no haircut.”
A spokesperson for the IMF didn’t immediately respond to a request for comment on Wednesday.
It’s “critical” that the restructuring includes “coupon and nominal” reductions as well as maturity extensions, Ukraine’s Finance Ministry said in a statement to Bloomberg on Wednesday. “It remains our firmly held view that there is no other means of achieving these targets simultaneously.”
Creditor Rejection
Ukraine rejected a proposal from a five-member creditor group led by Franklin Templeton and holding about $10 billion of the nation’s debt earlier this month, saying it didn’t go far enough to meeting IMF targets because it only involved a maturity extension.
A spokesman for the creditor group declined to comment when contacted yesterday by e-mail.
Ukraine’s $2.6 billion of bonds due July 2017 fell 0.22 cent to 45.67 cents on the dollar at 2:09 p.m. in Kiev. The price fell to a record 37.75 cents on March 25. The first securities to come due, in September, climbed 0.17 cent to 50.79 cents.
Prices of about 46-to-48 cents on the dollar imply markets assume no principal haircut and a “smooth restructuring process,” JPMorgan analysts led by Jonny Goulden said in an e-mailed report on Monday.
Other analysts disagree. Citigroup’s Ivan Tchakarov, Commerzbank AG’s Simon Quijano-Evans and Bank of America’s Khramov all say current prices reflect expectations for haircuts varying from 25 percent to 50 percent.
Government Retreat
The necessity of a writedown may hinge on whether a fragile peace agreement between the government and rebels in the country’s east, according to Quijano-Evans, Commerzbank’s head of emerging-market research in London.
“If you have a continued calming in eastern Ukraine then you’d have a recovery in the currency and debt to GDP would automatically fall,” Quijano-Evans said by phone on Wednesday. “Maybe we’ll see the government step down in the next few weeks as to the amount of haircut it would like to see.”
Keine Kommentare:
Kommentar veröffentlichen