BLBG: Ukraine Bonds Rebound on Bets Default Threat to Speed Up Deal
Ukrainian bonds rose for a second day as investors bet a government threat to halt debt payments may accelerate an agreement with creditors.
The nation’s $2.6 billion of bonds due July 2017 rose 0.26 cent to 46.1 cents on the dollar by 12:55 p.m. in Kiev after rising 0.91 cent on Wednesday. The notes fell 1.36 cents on Tuesday, the most in two months, as lawmakers gave the government in Kiev power to impose a moratorium on meeting some external debt obligations.
Ukraine has been pushing bondholders to accept a principal writedown as it seeks to wrap up a restructuring deal by June 15 to unlock the next tranche of a $17.5 billion International Monetary Fund loan. Creditors holding $8.9 billion of the bonds and loans have put forward a proposal that avoids a so-called haircut, leaving the two sides deadlocked as the Ukrainian economy sinks into the worst recession since 2009.
“The Finance Ministry bringing the D-word into the negotiations could break the gridlock,” Vitaliy Sivach, a Kiev-based bond trader at Investment Capital Ukraine, said by e-mail, referring to default. The likelihood of a positive outcome that avoids outright default has increased, he said.
Ukraine has a $33 million coupon payment coming due Thursday on a $1 billion note set to mature in November 2016, according to data compiled by Bloomberg. Russian Finance Minister Anton Siluanov threatened on Wednesday to take the nation to court if it misses a June 20 interest payment on a Eurobond it bought from the regime of former President Viktor Yanukovych before he was overthrown in February 2014.
The moratorium provides leverage in negotiations and will only be used if a deal isn’t completed on time, Finance Minister Natalie Jaresko said on Tuesday.
Game Theory
Restructuring is needed to restore fiscal sustainability and cover external financing needs, the IMF said in an e-mailed statement on Thursday. Talks between Ukrainian authorities and bondholders need to proceed quickly, it said.
“From a game-theoretical perspective, Ukraine is in a stronger position to negotiate than the bondholders,” analysts at Citigroup Inc., including Moscow-based Ivan Tchakarov, said in an e-mailed report on Thursday. “This ultimately argues for a collaborative solution that involves no default, but with some principal haircut.”
