Russia Questions Ukraine’s Solvency, Delays Bailout on CrisisOlga Tanas
Ukraine’s political crisis has raised “many questions” about its ability to repay debt, pushing Russia to suspend a bailout and threatening the central bank’s ability to defend the currency, according to Russian Finance Minister Anton Siluanov.
The situation in Ukraine must stabilize before Russia will provide further aid from the $15 billion aid package agreed on last year, Siluanov said today in an interview in Hong Kong. Russia had planned to buy $2 billion of its neighbor’s bonds this week, while Standard & Poor’s cut Ukraine to CCC, eight grades below an investment rating.
President Viktor Yanukovych signed an accord today with opposition leaders, agreeing to curb his powers and hold an early election in December after the deadliest clashes in a three-month protest killed at least 77 people this week in the capital, Kiev. The demonstrations started after Yanukovych snubbed integration with the European Union to repair ties with Russia.
“There are many questions about how these funds will be used and how they will be paid back later,” Siluanov said before the agreement was signed. “It’s essential to wait for the situation to clear and to stabilize.”
Russia is delaying additional bond purchases “based on the unexpected and drastic escalation” in Ukraine, Siluanov said. Ukraine scrapped a $2-billion bond issue, the Irish Stock Exchange, where the notes were to be listed, said yesterday.
Ukraine is at risk of default after the political crisis “deteriorated substantially,” according to S&P.
Ukraine won $15 billion of Russian financing and a one-third discount on natural gas prices after Yanukovych met with Russian President Vladimir Putin in Moscow in December. Russia bought $3 billion of two-year, non-traded Ukrainian Eurobonds with a 5 percent coupon later that month.
The $2 billion tranche planned for this week was supposed to have the same terms, according to Siluanov.
Ukraine’s debt rallied today, with the price on $1 billion of 7.95 percent notes due in June climbing to 96 cents on the dollar from 93.1 cents yesterday, after Yanukovych called for forming a government “of national trust.” The securities yield 23.08 percent. S&P cut Ukraine and kept its outlook negative, saying the situation in Kiev had “deteriorated substantially.”
Central bank interventions to support the hryvnia may waste Ukraine’s international reserves and won’t stop the currency’s depreciation, according to Siluanov. The hryvnia, which is managed by the central bank, has weakened about 8 percent against the dollar this year.
“Ukraine’s central bank may exert the effort to support the hryvnia, but demand for foreign currency will be high in this unstable political climate,” Siluanov said.