Ukraine’s Eurobonds tumbled after the Finance Ministry said the country is ready to consider debt restructuring as it negotiates an international aid package and military tension with Russia simmers.
The government’s dollar-denominated notes due in June fell 1.5 percent to 93.8 cents on the dollar at 6:33 p.m. in Kiev. The hryvnia depreciated 2.7 percent to 9.35 per dollar from the strongest level in more than a week, data compiled by Bloomberg show. Ukrainian stocks traded in Warsaw fell 3.4 percent, the most since tumbling 16 percent on March 3 after Russian President Vladimir Putin got parliamentary approval to send troops into the former Soviet republic.
Selling resumed today after the Finance Ministry indicated it may be open to restructuring debt, stoking concern Ukraine will fail to settle obligations on time. The nation, which is in talks with donors including the International Monetary Fund, has $10 billion of foreign-currency debt due by year end, Finance Minister Oleksandr Shlapak told reporters in Kiev today.
“The IMF may recommend some kind of debt restructuring along the lines of rescheduling of obligations and extension of maturities,” Ivan Tchakarov, chief economist for Russia at Citigroup Inc., said by phone. “This is negative for the market.”
The $1 billion of 2014 notes rebounded yesterday from a record low after Putin said there was no need for an immediate Russian invasion of Ukraine.
The European Union promised 1.6 billion euros ($2.2 billion) in emergency aid and called for additional grants and project loans that could take the European contribution to more than 11 billion euros over seven years. U.S. officials have said they are preparing $1 billion in loan guarantees.
The Finance Ministry will be able to meet its obligations, according to a statement today, although it would consider restructuring if investors “want and officially request such a change.” Ukraine seeks to secure more than 610 million euros of EU aid, Shlapak said today, adding the country faces peaks in debt maturities in May, June and August.
“Without IMF and EU money, debt restructuring is likely,” Vadim Khramov, a London-based analyst at Bank of America Corp., wrote in e-mailed comments today. “At the same time, $15-20 billion from the IMF and $15 billion from EU would decrease risks of defaults substantially.”
Yields on government bonds maturing in April 2023 climbed four basis points to 9.69 percent, after dropping 89 basis points, or 0.89 percentage point, yesterday. Three-month non-deliverable forward contracts on the currency weakened 0.2 percent to 10.7670 per dollar, reflecting bets it will drop 15 percent in the period.
Russia defied pleas from the West to loosen its grip on Crimea, with Foreign Minister Sergei Lavrov saying the government in Kiev no longer rules over the region. U.S. Secretary of State John Kerry warned Russia against violating “very clear legal obligations” to uphold Ukraine’s unity.
“The main risks are political here, related to Russia,” Khramov said. Even if international aid arrives, “military conflict is still a risk.”