Bonds of Ukraine’s third-biggest bank surged past 70 cents on the dollar for the first time since January on optimism the lender will gather enough support for a debt-restructuring offer to avoid defaulting.
State Export-Import Bank of Ukraine’s $750 million of notes due next week rose 8.92 cents to 73.67 cents on the dollar at 6:01 p.m. in Kiev, the highest level since Jan. 20. That drove the premium above sovereign notes due in September to a record 23 cents. The lender put forward an offer on Monday to encourage its creditors to vote in favor of a three-month extension at a meeting on April 27, the day the notes mature.
“The terms of the restructuring have been made quite attractive,” Dmitri Petrov, an analyst at Nomura Holdings Inc. in London, said by e-mail. “Somebody must be expecting/suspecting a successful maturity-extension vote.”
The proposal, which includes pushing back the bond redemption by seven years and increasing the coupon by 1.25 percentage points, boosted optimism that Ukraine will succeed at overcoming the first hurdle in a broader $23 billion restructuring. Reaching new terms on 29 bonds and loans is essential for Ukraine to avoid jeopardizing a $17.5 billion International Monetary Fund bailout needed to shore up an economy battered by a yearlong conflict in the nation’s east.
While Ukraine got $5 billion of the aid package in March, the second tranche is contingent on the government reaching a deal with creditors including Franklin Templeton, the biggest, before the IMF review in June.
Ukreximbank’s offer comprises the payment of half of the principal in April 2019, with the rest payable in semi-annual installments from October that year. The coupon on the notes would be raised to 9.625 percent from 8.375 percent.
As the 2015 note rallied, Ukreximbank’s $125 million of debt due in February 2016 and $600 million maturing in January 2018 each jumped at least 7.25 cents. The two securities have traded at a discount to the 2015 bonds, signaling concern they may face harsher restructuring terms.
“The bonds are gaining because Ukreximbank said they would be given similar treatment as the 2015 bond” on a conference call with investors on Tuesday, Richard Segal, the head of emerging-market credit strategy at Jefferies Group LLC in London, said by e-mail on Tuesday. “This is the first time intentions toward the ‘18s have been publicly addressed.’’
Ukraine’s Finance Ministry made it clear in an April 4 statement that creditors of Ukreximbank, along with those of AT Oschadbank and Ukrainian Railways, will receive preferential treatment relative to the sovereign because they don’t have state guarantees. The bonds will only be used to meet the first of three targets mandated by the IMF as part of its bailout.
For the first, Ukraine needs to reduce financing costs by $15.3 billion over the next four years. The second is to bring the public and publicly guaranteed debt-to-gross domestic product ratio to below 71 percent by 2020, while the third seeks to keep the budget’s gross financing needs at an average of 10 percent of GDP in the 2019-to-2025 period.
The tougher terms facing sovereign creditors is reflected in the price, with the nation’s $2.6 billion of debt due in July 2017 trading at 44.49 cents on the dollar on Tuesday even after rallying the most in six weeks.
Ukraine’s reserves tumbled by almost two thirds in a year to a record $5.63 billion in February. The economy is poised to shrink 5.2 percent after contracting 6.9 percent last year, according to surveys compiled by Bloomberg.
Ukreximbank’s offer came after the lender said last week it will probably default if creditors reject the initial three-month extension. The quorum threshold for the April 27 vote was lowered to investors holding one third of the principal. Of those who vote, 75 percent need to vote in favor.
‘‘Few will resist such a generous offer given the current situation in the country,” Vitaliy Sivach, a Kiev-based bond trader at Investment Capital Ukraine, said by e-mail. The bond may rise to as high as 80 cents, he said.