Ukraine to Consult Bondholders on Debt Terms After IMF Loan
By Olga Tanas, Andrew Mayeda and Stefan Riecher Jan 22, 2015 11:02 AM GMT+0100
Ukrainian Finance Minister Natalie Jaresko said yesterday in an interview at the World... Read More
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Ukraine said it will approach holders of its sovereign bonds to try to negotiate more favorable borrowing terms after finalizing a proposed loan package with theInternational Monetary Fund.
“We’ll reach out to our sovereign creditors and talk to them about their vision, our vision, how we can work together to improve the debt sustainability in the medium-term,” Ukrainian Finance Minister Natalie Jaresko said Wednesday in an interview at the World Economic Forumin Davos, Switzerland.
Ukrainian authorities requested a four-year financial aid package to ease the economic pressures that have pushed the former Soviet republic to the brink of default. An IMF staff mission is in Kiev, and Jaresko said she hopes the loan deal is reached by the end of this month.
After meeting with Ukrainian officials in the Alpine resort, IMF Managing Director Christine Lagarde said she’s prepared to support the signing of a so-called extended fund facility that would replace the $17 billion standby arrangement the IMF granted in April.
“The market is taking this as confirmation of restructuring fears,” Olena Bilan, chief economist at Kiev-based investment bank Dragon Capital, said by phone. “The main question now is whether it will be a light restructuring, that is to say maturity extension, or if there will be a nominal haircut.”
Bonds Sink
After the announcement, Ukrainian government bonds maturing in July 2017 sank to 53.05 cents on the dollar, pushing the yield to a record high of 41.05 percent as of 10:40 a.m. in Kiev. The cost of protecting the Ukrainian government’s debt against default using credit default swaps is the world’s highest after Venezuela, according to data compiled by Bloomberg.
“Given that the sovereign bonds are quite tightly held, there is a fair chance that investors will agree to a maturity extension, enabling the government to save up to $8.8 billion on repayments until 2018, or over 30 percent of its total foreign currency debt service payments,” Dragon Capital said in an e-mailed research note.
Ukraine needs $15 billion on top of the previous IMF bailout to stay afloat, according to the European Union. The government was seeking to unlock the next tranche of the fund’s financing.
Larger Loan
The extended loan facility lasts longer than the current arrangement, and “as a result, its financing is also larger,” Lagarde told reporters Wednesday in Davos.
“It is a demonstration of the determination of the Ukrainian authorities to conduct serious long-term structural reforms in addition to also adjusting their fiscal policy in order to make sure that the Ukrainian economy is in a position to recover,” she said.
The military conflict with pro-Russian separatists has pushed the country’s economy into its deepest recession since 2009, left the hryvnia 48 percent weaker against the dollar last year and drained reserves to their lowest level since 2004. Ukraine’s government predicts gross domestic product will shrink 4.3 percent this year after contracting 7.5 percent in 2014.
The proposed new IMF arrangement will “allow us to gain access to additional resources, which in turn will enable us to return to economic growth, to restore adequate FX reserves and ensure economic and financial stability going forward,” Jaresko said earlier in a statement to reporters.
IMF Review
Lagarde said the IMF board will be convened as quickly as possible to review the request, which she would “certainly propose to support.”
The U.S. earlier this month pledged as much as $2 billion in loan guarantees to Ukraine as the former Soviet republic tries to avoid default amid an insurgency in its easternmost regions. The U.S. assistance follows EU aid of 1.8 billion euros ($2.08 billion).
In the interview, Jaresko said Ukraine’s economic problems are rooted in its “Soviet legacy” and will take “enormous efforts” to overcome.
“I hope that all of our stakeholders -- domestic market, international market, investors, creditors -- will have a sense of confidence that we’re entering into a long-term reform program,” she said. “We recognize the difficulties that we face and we are committed to do whatever it takes in a longer-term program.”
To contact the reporters on this story: Olga Tanas in Davos, Switzerland, atotanas@bloomberg.net; Andrew Mayeda in Ottawa at amayeda@bloomberg.net; Stefan Riecher in Davos at sriecher@bloomberg.net
To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.netPaul Abelsky, Scott Rose
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