Ukraine Plans Eurobond as Deputy Minister Sees IMF Cash

Ukraine’s government is seeking to sell Eurobonds under a U.S. guarantee as foreign aid flows help stabilize financial markets, Deputy Finance Minister Vitaliy Lisovenko said.

The former Soviet republic will probably receive the first part of a $17 billion International Monetary Fund bailout next month, along with smaller payouts from the European Union, the World Bank and Japan, Lisovenko said in an interview in Kiev April 25. The government has to meet $9 billion in foreign-currency debt payments due this year, he said.

Lisovenko said the first international aid payments next month will help turn sentiment toward the economy, which the IMF predicts will shrink by 5 percent this year. Ukraine’s benchmark Eurobonds are heading for the biggest monthly slump since June amid deadly conflict in the country’s east between the government and pro-Russian separatists after President Vladimir Putin annexed Ukraine’s Crimea region last month.

“We will get a good amount of money and this should positively affect expectations for the Ukrainian economy,” Lisovenko said. “Ukraine will issue Eurobonds under U.S. government guarantees in May” and could return to international debt markets later in 2014, he said.

The yield on the dollar notes due April 2023 dropped 12 basis points to 10.21 percent at 12:07 p.m. in Kiev, falling from a one-month high. The hryvnia was little changed at 11.55 per dollar, having declined 29 percent this year, the most among more than 100 currencies tracked by Bloomberg.

U.S. Sanctions

“Now there’s little demand for the long-term debt,” Lisovenko said. “After the situation stabilizes, which we expect during the next two months, demand for longer-term debt should also resume.”

The U.S. imposed new sanctions yesterday on seven Russian officials and 17 companies linked to Putin’s inner circle involved in banking, energy and infrastructure. The list includes Igor Sechin, chief executive officer of OAO Rosneft, the country’s biggest oil company.

In the worst confrontation with the U.S. and its European allies since the Cold War, Russia has started military exercises on Ukraine’s border, where the North Atlantic Treaty Organization says Putin is massing about 40,000 troops in battle readiness. The U.S. and EU say Russia hasn’t lived up to an accord signed April 17 in Geneva intended to defuse the situation.

Mobius ‘Trap’

While the Ukrainian government contests Putin’s takeover of Crimea, Russia is not planning to repeat what happened in the Black Sea peninsula in southeast Ukraine, Interfax reported today, citing comments by Deputy Foreign Minister Sergei Ryabkov broadcast on Gazeta.ru.

“Even as yields keep rising, political and economic risks are still too big” to hold any Ukrainian government debt, Viktor Szabo, who helps oversee more than $11 billion in emerging-market debt at Aberdeen Asset Management Plc, said by e-mail.

Mark Mobius, who oversees about $50 billion as executive chairman of Templeton Emerging Markets, said yesterday the company is trapped with its Ukraine equity holdings and isn’t selling them. The Ukrainian Equities Index declined 1.3 percent, paring this month’s increase to 8.6 percent. An index of Ukrainian stocks listed in Warsaw rose 0.3 percent yesterday, trimming this year’s drop to 33 percent.

Budget Improvement

Templeton is keeping its holdings of Ukrainian companies, “mainly in the western area,” where “business goes on as usual,” Mobius said in an interview in Bucharest. “In fact some of these companies benefit from the devaluation of the hryvnia because they become very export competitive.”

Aside from the IMF aid, Ukraine stands to receive $750 million from the World Bank, 600 million euros ($832 million) from the European Union and $100 million from Japan in May, Lisovenko said. Inflows from taxes and foreign trade are also shoring up the budget after a tough start of the year, he said.

“At the beginning of 2014, we had moments when there was only a couple of million hryvnia on a single treasury account,” Lisovenko said. “I can’t say we have solved now all the problems -- the situation with the account stayed rather difficult -- but we managed to stabilize it.”

To contact the reporters on this story: Daria Marchak in Kiev at dmarchak@bloomberg.net; Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editors responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net; Balazs Penz at bpenz@bloomberg.net

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