Ukraine Bonds Surge on Better-Than-Expected Restructuring Deal

  • Creditors agree 20% writedown, 4-year extension, 7.75% coupon
  • Ukraine 2017 note jumps most on record to 65 cents on dollar

Ukrainian bonds jumped the most on record after the government agreed to a softer restructuring deal than some analysts expected.

The nation’s $2.6 billion of notes maturing in July 2017 gained 15.4 cents to 70.93 cents on the dollar at 7:15 p.m. in Kiev. Ukraine and its creditors agreed to writedown the principal on $18 billion of Eurobonds by 20 percent, extend repayment dates by four years and set all coupons at 7.75 percent, the Finance Ministry said in a statement Thursday. The government was originally said to have sought a so-called haircut of 40 percent.

“Looks like the deal is more investor friendly than expected,” said Dmitri Barinov, who oversees $2.6 billion of assets as a money manager for Union Investment Privatfonds GmbH in Frankfurt. “I have big doubt that Ukraine will be able to pay back in four years, so short term it looks like a done deal but the burden of debt is still very high for Ukraine and the issue of restructuring will resurface again.”

The deal aims to meet three conditions set out in an International Monetary Fund bailout, including savings of $15.3 billion in debt-servicing costs over four years and reducing the burden to below 71 percent of gross domestic product. The IMF supports the deal and says it will “substantially meet” all the targets of the program, according to the Ukraine statement.

The four-member creditor committee led by Franklin Templeton insisted until about a month ago that Ukraine could meet its commitments to the IMF without a cut to principal. Direct talks only began about six weeks ago after about two months of public wrangling over the writedown issue.

The $500 million note due Sept. 23 added 12.8 cents to 71.03 cents on the dollar, while 2023 bond jumped 16.1 cents to 70.55 cents.

“The compromise will support prices in short to medium term,” said Vitaliy Sivach, a Kiev-based bond trader Investment Capital Ukraine. “Price could go up to 65-70 cent area. Don’t forget the yield is very attractive for some high-yield funds.”

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