(Bloomberg) -- Ukraine’s bonds tumbled after Finance Minister Natalie Jaresko said the government intends to hold talks with creditors once it reaches an agreement with the International Monetary Fund for further assistance.
Ukraine’s benchmark notes maturing July 2017 slumped 3.9 cents to a record low 52.95 cents on the dollar at 7:18 p.m. in Kiev. The bonds fell earlier as President Petro Poroshenko said there is “grave danger” the pro-Russian insurgency in the country’s east may intensify, and that the nation needs more financial help to stay afloat.
Ukraine will hold talks with creditors to improve its medium-term debt sustainability, Jaresko said after meeting with IMF officials in Davos, Switzerland. IMF head Christine Lagarde said its board would soon meet to review a request for an extended fund facility which would replace an existing stand-by agreement. The comments illustrate the measures Ukraine is taking as it races to secure aid it needs to pull the economy out of its deepest recession since 2009.
“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.”

Battered Growth

Ukraine is seeking further assistance on top of a $17 billion loan from the IMF after the conflict with pro-Russia rebels in the country’s east battered growth and left the hryvnia 48 percent weaker last year. Moody’s Investors Service last month said Ukraine requires an extra $15 billion to $20 billion and the risk of sovereign default is “exceedingly high.”
Ukraine has $14 billion of principal and interest payments coming due this year on foreign and domestic debt and $10.2 billion of liabilities in 2016, according to data compiled by Bloomberg.
“Debt restructuring is possible, but this is a very political matter,” Michael Ganske, who helps oversee $7 billion in emerging-market bonds and currencies at Rogge Global Partners Plc including Ukrainian hard currency sovereign debt, said by e-mail. “If there is debt re-profiling, I guess it will be a voluntary debt exchange with maturity extension and coupon decrease.”

Worst Showing

Ukrainian dollar bonds have lost an average 5.8 percent this month, second-worst among 58 countries in the Bloomberg USD Emerging Market Sovereign Bond Index, trailing only Venezuela.
Bond prices are signaling expectations of delayed repayments and possible losses on principal, Lutz Roehmeyer, who oversees $1.1 billion of emerging market debt, including Ukrainian securities, at LBB Invest, said earlier this month. “If you expect Ukraine to lengthen the maturities by three to five years only, without a haircut, the bonds should trade above 80 cents,” he said.
Steps on the consultation with sovereign creditors will be presented by the Ukrainian authorities once an agreement is reached with the IMF, Jaresko said.
The hryvnia, the world’s worst-performing currency last year, was little changed at 15.822 against the dollar on Jan. 21.
Fighting in the Donetsk and Luhansk regions has intensified since a round of peace talks last week failed. The conflict has killed more than 4,800, according to the United Nations.
To contact the reporters on this story: Krystof Chamonikolas in Prague atkchamonikola@bloomberg.net; Marton Eder in Budapest at meder4@bloomberg.net
To contact the editors responsible for this story: Wojciech Moskwa atwmoskwa@bloomberg.net Zahra Hankir, Boris Korby