Ukraine to Wait for Eurobond Window as $1 Billion March Debt Payment Safe

Ukraine can wait until market conditions are right for a planned sale of dollar-denominated bonds as it has sufficient funds to cover debt payments, First Deputy Prime Minister Valery Khoroshkovskyi said yesterday.

“We will wait for a window,” Khoroshkovskyi, who was appointed last week, said in an interview in Brussels. “We repaid $1 billion of debts in February. We have to repay approximately the same amount in March and even if we do not issue Eurobonds we will pay it easily.”

Ukraine is also in talks to borrow cash from Russian banks and plans to refinance a $2 billion loan from VTB Group (VTBR) that matures in June, said Khoroshkovskyi, who served previously as finance minister.

President Viktor Yanukovych appointed Khoroshkovskyi Feb. 22, part of Cabinet changes before parliamentary elections in October. The Finance Ministry picked JP Morgan Chase & Co. (JPM), Morgan Stanley (MS) and Russian’s VTB Capital and Troika Dialog, which is controlled by OAO Sberbank (SBER), to lead manage a potential Eurobond sale, according to a Feb. 3 statement.

Ukraine’s 6.25 percent government bonds due to 2016 rose as of 1 p.m. in Kiev, pushing yields down to 8.332 percent from 8.578 percent yesterday. The hryvnia strengthened to 7.9923 per dollar from 7.9978 on Feb. 24.

Hryvnia Is ‘Stable’

Ukraine’s hryvnia will remain stable as “we do not have any difficulties now which may” push the currency down, Khoroshkovskyi said. “It is stable and it is a good position for the economy and a good indicator for business,” he said.

The government plans to borrow 12.15 billion hryvnia ($1.5 billion) abroad in March, the Finance Ministry said Feb. 9.

Ukraine will only proceed with a Eurobond sale if market conditions are “favorable,” Halyna Pakhachuk, head of the Finance Ministry’s financial-policy and government-debt management department, said Feb. 16.

There are “good” signs that the government can refinance its VTB loan, which was granted by Russia’s second-biggest bank in June 2010 for six months and carries an interest rate of 6.7 percent, Khoroshkovskyi said. Ukraine agreed on its first six- month extension in December 2010 and had an option to prolong it two more times, according to the accord.

‘Skeptical on Loan’

“I’m skeptical on a loan from Russian banks,” Alexander Valchyshen, head of research at Investment Capital Ukraine in Kiev, said yesterday by e-mail. “A much more logical way is tapping the Eurobond market if there’s a chance.”

Khoroshkovskyi, 43, served as finance minister from Jan. 18. He had previously been in charge of the Ukraine’s security service. He replaced Andriy Klyuev, who was named as secretary of the National Defense and Security Council.

Khoroshkovskyi will lead talks with the International Monetary Fund on a $15.6 billion loan program that’s been frozen since last March as well as negotiations to strengthen ties with the European Union. Before it resumes disbursements, the IMF has demanded the government raise utility tariffs for households to trim the state’s budget gap.

Ukraine will raise prices “when we can,” Khoroshkovskyi said. “Now is not a very good period. We remember in previous times that when you move prices up, people cannot pay them.”

Democratic Principles

IMF financing for Ukraine will depend on the country’s adherence to democratic principles, Philip H. Gordon, the U.S. assistant secretary of state, said in a televised interview with Ukrainian channel TVi on Feb. 12.

Khoroshkovskyi said he asked IMF officials about Gordon’s remarks and was told the lender only looks at the economic situation. Ukraine is at odds with IMF recommendations to adopt a flexible exchange rate.

The EU delayed indefinitely the signing of an association agreement, planned for December, because of the imprisonment of the opposition leader Yulia Tymoshenko.

Ukrainian authorities moved 51-year-old Tymoshenko to a penal colony in the Kharkiv region in eastern Ukraine on Dec. 30, a week after a court upheld her seven-year prison term for signing a gas contract with Russia in 2009. A verdict last year that found Tymoshenko had abused her authority by signing the agreement when she was premier drew condemnation from the EU and the U.S. as well as Russia.

‘Purely Legal’

“If we’re talking about the political point of view, then everything is possible,” Khoroshkovskyi said of the former prime minister’s release. “If we speaking from a purely legal point of view, and this is one on which the judiciary system is based, there’s no such a possibility today.”

Ukraine is changing its legislation on criminal proceedings, Khoroshkovskyi said. Provisions on which Tymoshenko was sentenced are not to be revised, he said, adding that it “remains to be seen what will be the final decision by the legislative body.”

A court in Kiev sentenced Tymoshenko’s ally and former Interior Minister Yuriy Lutsenko yesterday to four years in prison for abuse of power, saying he spent too much state budget money on celebrating Day of Police and illegally granted an apartment to his driver.

“We are disappointed with the verdict against Lutsenko, which signals the continuation of trials in Ukraine which do not respect international standards as regards fair, transparent and independent legal process,” EU Enlargement Commissioner Stefan Fule said in yesterday’s statement. The EU will continue to monitor the cases of Tymoshenko and Lutsenko, he said.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net

To contact the editor responsible for this story: Alessandro Vitelli at avitelli1@bloomberg.net Balazs Penz at bpenz@bloomberg.net

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