Ukraine’s Eurobonds Snap Decline as Templeton Praises GovernmentAndras Gergely and Boris Korby
Ukraine’s benchmark dollar debt gained for the first time in four days after Franklin Resources Inc., the biggest holder of the notes, said it was encouraged by the government’s policies to deal with an economic crisis.
The yield on bonds due April 2023 fell 11 basis points to 9.42 percent by 6:28 p.m. in Kiev, according to data compiled by Bloomberg. Sovereign debt maturing June 4 rose 0.52 cents to 97.44 cents on the dollar.
Franklin Templeton Investments boosted holdings of Ukrainian bonds in the fourth quarter even as the nation faced insolvency and civil unrest, leading to the installation of a new government in February. While Ukraine remains at the center of the biggest confrontation between Russia and the U.S. since the Cold War, Templeton is focusing on its “long-term potential” and the “encouraging” measures of the new administration, the fund manager said on its website yesterday.
“The current government has done an exceptional job,” said Michael Hasenstab, who oversees Templeton’s $190 billion global bond group. The group has amassed $7.3 billion in Ukraine’s debt and increased its holding in the fourth quarter, according to data from its most recent filings compiled by Bloomberg.
The policies of Prime Minister Arseniy Yatsenyuk’s government are “tackling not just the short-term issues but really setting the stage for Ukraine to flourish over the next five to 10 years by putting in place very difficult, but very important, structural reforms,” Hasenstab said in a video filmed in Kiev on April 5 and posted on the website.
Ukraine, which faces more than $9 billion in debt payments this year, agreed to cut its budget deficit to 2.5 percent of gross domestic product by 2016, raise retail energy prices, maintain a flexible exchange rate and address banks’ bad loans, the International Monetary Fund said in a March 27 statement.
The IMF was announcing a deal that was expected to unlock as much as $27 billion in aid once Ukraine takes steps to stabilize the economy. The deficit was 4.4 percent of GDP in 2013, the Finance Ministry said last month.
Bonds declined yesterday after Energy Minister Yuri Prodan said Ukraine won’t buy Russian gas for storage until a price is agreed and Russian President Vladimir Putin told his government to draw up a plan to replace Ukrainian imports.
Russia has ratcheted up pressure on its neighbor after annexing Crimea last month, ignoring sanctions from the U.S. and European Union, massing troops along its eastern border and raising gas prices.
Ukraine is heading toward default and gas export monopoly OAO Gazprom will halt shipments if the country continues to fall behind in payments, Putin said, according to a letter to 18 heads of European states published today.
The hryvnia hit a record low of 13.3 per dollar today and traded at 12.60, bringing the decline this year to 35 percent, the worst performance among global currencies tracked by Bloomberg.
“The unstable situation in eastern Ukraine, yet-to-be-received external financing and a devaluing national currency all increased the vortex of negative sentiment,” Alexander Valchyshen and Taras Kotovych, Kiev-based analysts at Investment Capital Ukraine LLC, wrote in an e-mailed report today.