Ukraine’s Eurobonds headed for the biggest gain in more than a week on speculation the nation will reach agreement with creditors on its $19 billion debt restructuring at a meeting Wednesday.
The country’s $2.6 billion of July 2017 notes rallied 1.4 cents to the highest level in a week on closing basis. The first bond to mature, a $500 million security due Sept. 23, jumped 3 cents, headed for the second-biggest daily gain since February.
Finance Minister Natalie Jaresko is set to meet members of a creditor committee led by Franklin Templeton in San Francisco in an attempt to clinch a deal six months after announcing the need for a debt overhaul. The government has called the meeting the final opportunity to reach an agreement and leave enough time for execution before the Sept. note comes due.
“Some investors are making speculative bets a deal could be reached today,” Vitaliy Sivach, a Kiev-based bond trader at Investment Capital Ukraine, said by e-mail. “An agreement could push the prices up toward the 65 to 70-cent area.”
Ukraine needs to reduce the cost of servicing its international debt by $15.3 billion over four years and cut its debt burden to below 71 percent of economic output by 2020 to reach targets set out in a $40 billion International Monetary Fund aid program. Disagreements between Ukraine and the creditor group have centered on the size of a principal writedown. A deal will probably also include lower interest payments and a maturity extension.
“Ukrainian bonds are defying logic and gravity,” Timothy Ash, a strategist at Nomura International Plc in London, said by e-mail. “Ukrainian bond action seems more likely positioning by a few invested accounts to improve negotiating positions in the run up to talks.”
While creditors were said to have offered a 5 percent reduction to bond principal with conditions last month, Ukraine was said to be seeking a 40 percent so-called haircut in June, according to people familiar with the negotiations.
The government will only accept a so-called haircut of at least 35 percent if the average interest rate on restructured bonds remains near 7.5 percent, according to ICU’s Sivach. With coupons falling to about 4.5 percent, a 20 percent haircut may be enough to meet targets, he said.
“There are a number of parameters that can deliver these outcomes,” Nikolay Gueorguiev, the IMF’s mission chief for Ukraine, told reporters Aug. 4. It’s up to the two sides to discuss and agree on a specific design for the restructuring, he said.