Ukraine Eurobonds Fall 4th Day as BofAML Warns on Default Risks

Ukraine’s Eurobonds dropped for a fourth day as Bank of America Merrill Lynch warned the nation is underestimating the repercussions of default and investors awaited the outcome of Tuesday’s debt talks in Washington.

The country’s $2.6 billion of bonds maturing in July 2017 fell 0.97 cent to 47.53 cents on the dollar at 1:46 p.m. in Kiev, extending this week’s drop to 1.95 cents. The government might be shut out of international debt markets if it continues to take a hard line with creditors that leads to a debt moratorium, Bank of America Merrill Lynch economist Vadim Khramov wrote in a research report on Wednesday.

Ukraine has threatened to stop paying its international creditors if they don’t accept a proposal that includes a writedown to the face value of about $19 billion of bonds. The two sides met with the International Monetary Fund yesterday to discuss the crisis lender’s latest economic forecasts for Ukraine. Restructuring negotiations may follow today, Ukrainian government debt envoy Vitaliy Lisovenko said last week.

“Progress on sovereign debt restructuring has been limited so far and risks of a moratorium and hard default have been increasing,” Khramov said in an e-mailed note on Wednesday. “Reputational damage and risks of not coming back to the markets if negotiations continue to be detrimental, and of a hard default, seem to be underestimated.”

Central bank Deputy Governor Dmytro Sologub told reporters in Kiev on Tuesday he sees no difficulties for Ukraine’s banks and budget if the government announces a debt moratorium.

Economic ‘Reality’

Ukraine is restructuring its debt after a conflict with pro-Russian separatists in its easternmost regions sent its currency into a tailspin and drained reserves.

The nation’s economy was dealt another blow on Tuesday when Russia took away most of a price discount for natural gas, prompting Ukraine to halt purchases.

The Washington talks are meant to ensure all sides understand “the reality of Ukraine’s situation” Lisovenko told reporters in Frankfurt on Friday. “The structure of the economy is physically destroyed. We cannot rebound quickly.”

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