Ukraine Bonds Stay Higher as IMF Approves $17.5 Billion BailoutMatthew Brown and Lyubov Pronina
Ukrainian bonds stayed higher after the International Monetary Fund approved about $17.5 billion of loans for the nation, helping it stave off insolvency amid an insurgency in its east.
The IMF will advance the funds contingent on a “comprehensive economic reform program,” the Washington-based lender said in a statement on Wednesday. While the cash will help Ukraine replenish reserves and fund budget spending, its arrival also heralds the beginning of debt-restructuring talks with bondholders that are targeting as much as $15 billion of savings for the government over four years.
Ukraine’s $2.6 billion of 9.25 percent 2017 notes gained 0.6 cent to 47.29 cents on the dollar at 6:56 p.m. in Kiev, up from a record 41.699 on Feb. 24. The hryvnia stayed lower against the greenback, trimming its advance since falling to an all-time low on Feb. 27 to 56 percent as the central bank implemented capital controls and raised interest rates to 30 percent.
“Bond prices will rally in the short term as the IMF loan sign-off is clearly positive from a credit perspective,” Michael Ganske, who helps oversee $7 billion in emerging-market assets as a money manager at Rogge Global Partners Plc in London, including Ukrainian bonds, said before the announcement. “That said, we will enter into a tricky phase where Ukraine will try to cut a re-profiling deal with its creditors, so I expect a lot of price volatility.”
Ukraine’s Finance Minister Natalie Jaresko will hold a video conference with investors at 4 p.m. in Kiev on March 13, she said in a website statement on Wednesday.
“The program is ambitious and involves risks, notably those stemming from the conflict in the east of the country,” IMF Managing Director Christine Lagarde said in the statement.
Some key measures will be front-loaded under the new program, including further “sizable” energy-tariff increases, bank restructuring, governance reforms of state-owned enterprises, and legal changes aimed at combating corruption and strengthening the rule of law, she said.
The IMF loan is the second aid package since Moscow-backed President Viktor Yanukovych was driven from power in February 2014. The ouster sparked Russia’s decision to annex Crimea, and led to pro-Russian rebels fighting for control of Ukraine’s industrial heartland in the east.
Ukraine’s IMF-led international bailout also includes $9 billion in bilateral loans from agencies and governments, taking the total package including savings from the debt restructuring to about $40 billion. Some of the money will be used to replenish the country’s foreign-currency reserves, which fell to a record $5.6 billion in February, and some to the national budget.
Ukraine may avoid writedowns on the principal and stick to a “straightforward extension of maturities,” Paul Rawkins, a senior director at Fitch Ratings, said in an interview this week. The company keeps the sovereign at CC, the lowest junk grade that isn’t in default.