Ukraine’s Eurobonds slid the most in two months as renewed signs of discord between the nation and a Franklin Templeton-led creditor group increased the likelihood of default.
The sovereign’s $2.6 billion of debt due July 2017 fell 1.31 cents to 55.44 cents on the dollar at 5:28 p.m. in Kiev, the biggest drop since details emerged on June 11 that Ukraine was asking for a 40 percent writedown on principal. Progress made in direct negotiations that started last month stalled this week as a high-level meeting proposed by the government was turned down by creditors seeking more time to review Ukraine’s latest offer.
The war-ravaged country has threatened to freeze debt payments if it doesn’t make progress in its $19 billion bond restructuring, and may go down that route before a $500 million bond comes due on Sept. 23. Failure to reach an agreement early next week will force Ukraine to implement “alternative options” to meet debt-sustainability targets, the Finance Ministry said on Wednesday.
“This option is the introduction of a moratorium on servicing any government Eurobond,” Alexander Paraschiy, an analyst at Concorde Capital in Kiev, said in a research note on Thursday. “We do not expect the creditors’ proposal will significantly improve.”
The bondholder committee, which owns $8.9 billion of Ukraine’s Eurobonds, last week offered to accept a 5 percent cut to face value, according to a person with knowledge of the negotiations. A counter proposal from the government this week wouldn’t be acceptable to investors, another person said.