Ukraine Bonds End 6-Week Rally as Investors Count Debt-Deal Risk

Ukraine’s Eurobonds fell, capping the first weekly drop since June, as debt talks faltered and analysts at Credit Suisse Group AG warned the notes were pricing in a restructuring scenario that’s too optimistic.

The sovereign’s $2.6 billion of debt due July 2017 retreated 2.92 cents to 55.48 cents on the dollar this week, the first decline since the period ended June 19. A price range of 55 cents to 61 cents doesn’t take into account the risk of a breakdown in negotiations, analysts at Credit Suisse, including Nimrod Mevorach, said in a research note dated Aug. 6.

Progress in the $19 billion restructuring stumbled this week as a high-level meeting proposed by Ukraine was turned down by a creditor group led by Franklin Templeton seeking more time to review the government’s latest offer. The war-ravaged nation said talks planned for early next week were the “last opportunity” to reach a deal before a $500 million bond matures in September.

“Given how far both sides are from reaching an agreement, we doubt that the negotiations next week can succeed,” Credit Suisse said. “We cannot rule out the possibility that the government may impose a moratorium on the repayment of its external debt in the coming weeks.”

Ukraine wants debt relief to the tune of 40 percent of the debt subject to the revamp, although the four-member creditor group owning about $8.9 billion of the notes so far conceded to only a 5 percent so-called haircut, according to people with knowledge of the negotiations.

The 2017 securities dropped 0.28 cent by 12:49 p.m. in Kiev, while the sovereign’s $1.25 billion of bonds maturing in April 2023 climbed 1.36 cents to 56.09 cents on the dollar, trimming the weekly loss to 2.48 cents.

Assuming a principal writedown of 10 percent to 20 percent for the bonds, the fair value for the debt is 55 to 55.5 cents on the dollar, Credit Suisse said. Yerlan Syzdykov, the head of emerging-market debt at Pioneer Investment Management Ltd., said in an interview he’s waiting for more weakness to add to his holdings of the eastern European country’s bonds.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE