Ukraine Bond Rises to Highest in Five Months on Debt Talks

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Ukraine’s Eurobonds rose to a five-month high as the government and creditors prepared to hold a second round of talks on the nation’s $19 billion debt restructuring, bolstering bets a deal will be reached.

The country’s $2.6 billion bond maturing July 2017 rose 1.49 cent to 55.10 cents on the dollar, the highest since February 12 on a closing basis, as of 6:24 p.m. in Kiev. The note, which has a $120 million coupon due Friday, has advanced 6.59 cents this month.

Government officials and a committee of creditors will discuss terms on restructuring the country’s external debt on a phone call, a Finance Ministry spokesman said Tuesday. Negotiations gained traction in July after the two sides signed a confidentiality agreement, ending a two-month impasse amid a disagreement on the need for a principal reduction. Ukraine had warned it would stop payments as soon as this week.

“Talks are showing modest progress and that will probably deter Ukraine from announcing a halt to debt payments,” Fyodor Bagnenko, a Kiev-based bond trader at Dragon Capital, said by e-mail. “With the settlement of today’s trades falling on the coupon date, and the bond trading with zero days of accrued interest, investors are buying the bond with a lower so-called dirty price.”

The debt restructuring is part of a $40 billion International Monetary Fund aid package that has helped the country’s economy stay afloat as it grapples with recession and a pro-Russian insurgency in its eastern regions. With bondholders contributing $15.3 billion to the program, the Washington-based fund has delayed signing off on a loan payment since mid-June to wait for progress on the negotiations.

Tentative Schedule

Ukraine submitted a renewed letter of intent to the IMF on Tuesday, showing the country has fulfilled requirements for receiving the second disbursement, the Finance Ministry said in a statement on its website Wednesday.

The IMF’s Executive Board may decide on the next tranche on July 31, Prime Minister Arseniy Yatsenyuk said. A tentative schedule for board meetings on the fund’s website didn’t include a date for discussing Ukraine’s loan program.

The July 2017 note traded above the nation’s September 2015 bond for the first time in nine months, reversing a premium for the shorter maturity of as much as 5.8 cents one month ago. That shows investors are removing bets the bond maturing this year will receive special terms if the two sides fail to reach a deal by its maturity.

“The backdrop for Ukrainian Eurobonds is looking a bit better as creditors meet to talk again with the Finance Ministry,” Simon Quijano-Evans, the chief emerging-market strategist at Commerzbank AG in London, said in an e-mailed report.

Ukraine will likely pay the coupon as “there seems to be little reason to cause havoc at a time when creditor talks are ongoing.” he said.

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