Ukraine Debt Limbo Worse Than Default, Kiev Bourse Head Says

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Whatever the outcome of Ukraine’s debt restructuring talks, the sooner it comes the faster the country can resume efforts to attract foreign investment and revive the equities market, the head of the stock exchange said.

Even a potential default wouldn’t be “the most worrisome development” compared with continued uncertainty, Oleg Tkachenko, the chairman of the bourse in Kiev, said in an interview.

“If there is a restructuring agreement, there will be investor interest,” Tkachenko said in his office in Kiev June 26. “If there is a default, there will be investor interest and the debt burden will be lifted. Any development is better than the suspended state.”

The UX index slid 17 percent in the past year as Ukraine faced a pro-Russian insurgency in its eastern industrial heartland that are home to some of the country’s biggest companies. The government has been in talks with private holders of its debt since March to ease the burden on the state budget. In a sign of progress, the government and creditors agreed to take the negotiations private after two months of public quarreling.

To enhance a potential recovery, authorities must ease restrictions on the movement of capital, Tkachenko said.

Ukraine’s central bank tightened capital controls in February to prop up the hryvnia currency, which lost more than 40 percent against the dollar in the first two months of the year. Along with the war, which has claimed at least 6,300 lives according to the United Nations, the over-regulated market is a main factor deterring foreign investors, Tkachenko said.

Investor Exit

“Lifting the pressure of currency regulation is what we really want first of all,” Tkachenko said. “Once it’s lifted, we will see an inflow of money.”

The shares of Avdiivka Coke Plant, based in the war-hit Donetsk region, slid 65 percent in the past 12 months. Donbasenergo, a power supplier in the country’s east, fell 46 percent, while the Ukrainian unit of Austria’s Raiffeisen Bank International AG has dropped 40 percent.

The UX index traded at 1,008.35 at 3:11 p.m. in Kiev, compared with as high as 2,893.81 in 2011. The WIGUKR index of Warsaw-traded Ukrainian stocks, which has rebounded 34 percent this year, is still down 70 percent compared with January 2011.

The sovereign’s $2.6 billion of bonds due July 2017 climbed 2.3 cents to 50 cents on the dollar on Thursday, compared with as low as 37.75 cents in March.

Ukraine and the International Monetary Fund prepared a joint plan to ease capital controls gradually, the central bank said last month.

The regulator needs to lift restrictions on taking out funds from Ukraine so that investors can come and go freely, according to Tkachenko.

“If fighting in the east calms down, the market will start running,” he said. “If currency market limitations are lifted even partially from Sept. 3, the markets will start running quickly. If both, we kick-start very fast.”

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