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Ukraine Faces High Chance of Default, Russia’s Storchak Says

Kiev's Independence Square
A man eats a meal at Kiev's Independence square on February 25, 2014. Photographer: Bulent Kilic/AFP via Getty Images

Russia’s deputy finance minister said Ukraine faces a “high” chance of defaulting on its sovereign debt, while the new central bank chief in Kiev said talks were under way with creditors.

Russia, which suspended its $15 billion bailout to Ukraine last week, opposes the inclusion of its first $3 billion tranche in a possible restructuring, Sergei Storchak told reporters in Moscow today. There’s a “slight” risk Ukraine won’t repay the first installment of the debt and Russia is under no legal obligation to provide the remainder, he said. “No one expected that the situation would take such a dramatic turn,” he said.

The nation’s $1 billion of bonds due in June fell for the first time in four days, dropping 2.6 percent to 94.113 cents on the dollar, within 6 cents of par value. Bonds maturing in April 2023, which rallied to a four-week high yesterday, extended losses after Storchak’s remarks, with the yield rising 39 basis points to 9.65 percent at 7:21 p.m. in Kiev.

Ukrainian central bank Governor Stepan Kubiv said talks are “being held with all possible creditors, including the International Monetary Fund, according to a statement on the website of his party, Batkivshchyna. Acting President Oleksandr Turchynov said yesterday a new government should be formed quickly to enable the country secure as much as $35 billion in financial aid.

‘Many Obstacles’

While Ukraine’s new leaders will face ‘‘many obstacles’’ to form a functional government and implement policies in the short term, the IMF ‘‘and the West will provide them with short-term liquidity despite that,’’ Michael Ganske, the head of emerging markets at Rogge Global Partners Plc in London, said by e-mail today. ‘‘It’s geopolitics.’’

The U.S. and the European Union have pledged support to the new administration after parliament removed President Viktor Yanukovych following violence in central Kiev that killed at least 82 people last week before an EU-brokered peace deal. Russia says it won’t meddle in Ukraine’s affairs and urged the West to do the same.

Investment Climate

The situation in Ukraine must stabilize before Russia will provide further aid from the $15 billion bailout agreed on last year, Russian Finance Minister Anton Siluanov said Feb. 21 in an interview in Hong Kong. Russia had planned to buy $2 billion of its neighbor’s bonds last week, while Standard & Poor’s cut Ukraine to CCC, eight grades below an investment rating, and warned of a possible default.

‘‘Ukraine is now facing the full draft of Russian displeasure” after the ouster of Russian-backed President Viktor Yanukovych, Tim Ash, chief emerging-market economist at Standard Bank Group Ltd. in London, said today by e-mail.

Ukrainian lawmakers yesterday appointed Kubiv, the ex-chairman of Lviv-based VAT Kredobank, to head the central bank after voting out Ihor Sorkin. Kubiv plans to invite an IMF Fund mission, the Unian news service reported, without giving details.

“We’re in talks with the IMF on changing the investment climate so investors come to Ukraine and believe in stability,” Kubiv said.

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