Ukrainian bonds gained for an eighth day on optimism the country’s first direct debt talks with creditors today will ward off the prospect of default.
The sovereign’s $2.6 billion of bonds due in July 2017 climbed 0.22 cent to 53.92 cents on the dollar at 1:29 p.m. in Kiev, extending the longest winning streak for the bonds since October. Ukrainian Finance Minister Natalie Jaresko will meet creditors in Washington today, raising the possibility of a breakthrough in negotiations after two months of public disagreements over how to restructure $19 billion of the nation’s international debt.
The talks are taking place just nine days before a $120 million interest payment that Jaresko said last month it could default on. If a deal is reached soon, the country won’t need to use its power to halt payments on international debt, debt envoy Vitaliy Lisovenko said in an interview with Ukraine’s Segodnya newspaper on Wednesday.
“The market now sees the chances of a debt moratorium as very low,” Gintaras Shlizhyus, a Vienna-based strategist at Raiffeisen Bank International AG, said by phone Wednesday. “The market reasonably believes you can’t arrive at negotiations with a default in your hand.”
Ukraine is seeking debt relief after a 16-month conflict with pro-Russian separatists in its easternmost regions drained reserves, forcing the country to seek international aid.
Along with Franklin Templeton, Ukraine’s biggest bondholder, the government is negotiating with BTG Pactual Europe LLP, TCW Investment Management Co. and T. Rowe Price Associates Inc. The four members together own about $9 billion of Ukraine’s debt.
Today’s talks mark the start of the “early phase” of negotiations, which will continue to be dominated by a disagreement over whether the bonds require a principal reduction, according to Shlizhyus. Ukraine has asked bondholders to agree to a 40 percent so-called haircut, a person familiar with the nation’s proposal said last month, while creditors have refused to accept losses.
Michael Hasenstab, the Franklin Templeton money manager in charge of the fund’s Ukraine debt, reiterated, in a letter to The Washington Post on Sunday, that a writedown is not necessary, while Lisovenko said in the Segodnya interview today that the measure needs to be included. The two sides will probably agree in the end to a writedown of about 15-20 percent, Shlizhyus said.