Ukraine Faces Sunday Payment Deadline as Nomura Sees Deal Near

Updated on
  • $60 million interest payment looms for 2021 Eurobonds
  • Promeritum money manager expects deal or moratorium next week

Ukrainian bonds headed for a weekly decline before an interest payment comes due in two days that will shed light on the government’s progress in negotiating a $19 billion debt restructuring with creditors led by Franklin Templeton.

Nomura Holdings Inc. and Promeritum Investment Management LLP predict the eastern European nation will announce an agreement with holders of almost half of its external debt next week. The war-ravaged nation would need to make any restructuring offer within days to ensure it allows creditors enough time to consider the plan before $500 million of notes fall due Sept. 23.

Ukraine has a $60 million interest instalment due on Sunday toward a $1.5 billion note maturing in 2021. That security has fallen for five days to 55.59 cents on the dollar. Failure to pay could suggest the government is trying to put pressure on creditors to quicken the pace of talks before a 10-day grace period runs out and default is declared. Ukraine previously threatened to freeze Eurobond payments if an agreement isn’t reached. The Finance Ministry declined to comment on whether it will make the payment.

"Either a deal or a moratorium is likely next week," Pavel Mamai, who helps oversee $150 million in emerging-market assets, including Ukrainian bonds, as co-founder of Promeritum Investment in London, said on Friday. "A deal is more likely than a moratorium."

While bonds have fallen this week, they’ve handed investors the largest returns in emerging markets in the past month, suggesting an agreement may be favorable to creditors. The main point of contention has been the amount of debt relief creditors will shoulder, with people familiar with the negotiations signaling that the two sides have eased their initial positions for a 40 percent writedown on the government side and no reduction from the creditor side.

“Given the two sides are still talking/negotiating, one has to assume that the basis for a deal has been more or less thrashed out,” Tim Ash, the head of emerging Europe, Mideast and Africa credit strategy at Nomura Holdings in London, said in an e-mailed note.

Deal Seen

The announcement of a deal, which will probably be "favorable to bondholders," could coincide with Ukraine’s Independence Day celebrations on Monday, according to Ash. The government may also make clear next week that the $3 billion bond owed to Russia is subject to the same terms, he said.

While Ukraine has insisted the debt should be treated equally to other Eurobonds, Russia -- which bought the note from the regime of exiled former Ukrainian President Viktor Yanukovych -- argues it was official aid and is demanding full repayment.

The nation’s $2.6 billion of bonds due July 2017 climbed 0.49 cent by 4:11 p.m. in Kiev to 55.40 cents on the dollar, trimming the weekly loss to 2.63 cents.

“Quite a few people penciled in Wednesday as five weeks before the Sep. 23 maturity and get more nervous now in the absence of any news,” Fyodor Bagnenko, a Kiev-based bond trader at Dragon Capital, said by e-mail on Thursday.