Ukraine Bonds Climb as Key Debt Talks Said to Enter Second Day
Ukraine’s Eurobonds climbed to the highest level in more than a week on optimism a compromise will be reached on the nation’s $19 billion debt restructuring as negotiations in San Francisco enter a second day.
Talks between Ukrainian Finance Minister Natalie Jaresko and a creditor group led by Franklin Templeton will continue on Thursday, according to a person close to the negotiations who asked not to be named. The government’s $2.6 billion of notes due July 2017 climbed 0.34 cent to 56.94 cents on the dollar at 12:33 p.m. in Kiev.
Ukraine has described the talks near Templeton’s headquarters in San Mateo as the “final opportunity” to reach a deal before $500 million of bonds come due next month. After nearly five months of talks, the sides are still trying to overcome a disagreement over the size of a principal reduction needed to meet saving targets outlined in a $40 billion International Monetary Fund bailout.
“Ukraine’s Eurobond market remains relatively upbeat in anticipation of good news from the meeting,” Gintaras Shlizhyus, a Vienna-based strategist at Raiffeisen Bank International AG, said in an e-mailed note on Thursday. “The rumor has it that Ukraine and creditors could be reaching a compromise deal already this week.”
The creditor group, which holds about $8.9 billion of Ukraine’s foreign debt, made a first move toward a compromise last month when it was said to have offered a 5 percent reduction to bond principal, conditional on economic performance. Previously it had insisted that a cut to face value wasn’t necessary. Ukraine will consider imposing smaller losses on the bonds than the 40 percent it was seeking in June, a person familiar with the talks said last week.
Soros Plea
Billionaire investor George Soros said in an article in the Wall Street Journal on Thursday that investors should encourage Ukraine in its request for debt relief to help the war-torn country undertake vital economic reforms.
The nation needs to save $15.3 billion in debt-servicing costs over four years and lower debt to below 71 percent of gross domestic product by 2020 as conditions of the IMF program, the second review of which is scheduled for next month. The second tranche, of $1.7 billion, was approved on July 31.
The 2017 notes have rallied more than 8 cents since the beginning of July in anticipation of an agreement. The market may be being “overly optimistic” since a market-friendly restructuring would make it difficult for Ukraine to reach the IMF targets, Shlizhyus said. Last week, the analyst predicted bondholders would accept a 20 percent writedown.
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