Ukraine Bonds Slide as Minister Exit Exposes Risks to Stability

  • Risk premium on shorter 2019 debt vs longer maturities widens
  • Economy Minister quits, accusing officials of blocking change

Ukraine’s Eurobonds slumped the most since a debt restructuring last year after the nation’s economy minister resigned, raising concerns the country’s efforts to overhaul its economy are unraveling.

Yields on the nation’s bonds maturing in 2019 rose 58 basis points to 10.189 percent by 6:30 p.m. in Kiev, heading for the steepest daily increase since the notes first started trading in November. The premium investors demand to own the shorted-dated dollar-denominated debt over bonds maturing eight years later widened the most in a month to 73 basis points.

The selloff was triggered by the departure of Aivaras Abromavicius, who accused other government officials of blocking legislation aimed at spurring the economy and attracting investment. Ukraine needs to adjust policies to keep funds flowing from a $17.5 billion International Monetary Fund rescue loan granted almost a year ago to help the country through a recession worsened by unrest in its easternmost regions.

“The fact that he is leaving is a concern for investors that the commitment to implement the reforms can fade,” Regis Chatellier, an emerging-market strategist at Societe Generale in London, who recommends buying the country’s debt on its attractive carry, said by e-mail. "The repricing of the Ukrainian bond curve is somewhat logical as not complying with IMF requirements would mean default."

IMF Demands

The IMF, which is assessing Ukraine’s economic outlook, has held up a $1.7 billion tranche in bailout cash as it has asked the government to overhaul its pension system and demanded a tougher fight against corruption. President Petro Poroshenko said last month an agreement with the lender is expected soon.

Abromavicius, a Lithuanian citizen, was one of several foreigners drafted into the post-revolution cabinet to add impetus to plans to steer the nation away from its Soviet past. U.S.-born Finance Minister Natalie Jaresko led negotiations with creditors on the country’s debt overhaul.

The 40-year old minister’s resignation again underscores the fragility of the cabinet, said Timothy Ash, head of emerging-market strategy at Nomura International Plc in London. However, Abromavicius’s exit doesn’t mean the cabinet will fall, Ash said.

“It will force the issue of the looming cabinet reshuffle and refocus attention on the need to push on and deliver difficult reforms,” Ash said in an e-mailed note.

The hryvnia currency, which is tightly controlled by the country’s central bank, rose 0.8 percent to 25.7 per dollar after falling to an 11-month low on Tuesday.

Private creditors owning $15 billion in Ukraine’s bonds agreed to restructure their investments last year in a deal that included a 20 percent reduction to debt principle and extending maturities by an average of four years.

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