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The nation’s eurobonds, which have rallied almost 7 cents this month, suggest the market believes in the progress to be made in a debt restructuring deal between Ukraine and its creditors, Bloomberg reported.
Investors are betting that Ukraine and the creditor group led by Franklin Templeton are moving toward a compromise after a two-month standoff over the need for a writedown to the face value of its bonds, according to Bloomberg.
Ukrainian securities are rising, despite the fact that Ukraine has a 27.9% probability of defaulting on its debt in the coming year, the highest in the world, according to Bloomberg’s default risk model, suggesting that market participants are optimistic on prospects of reaching a deal.
The sovereign’s $2.6 billion July 2017 notes rose 1.43 cents yesterday to 55.04 cents on the dollar after the government said it will hold a conference call with creditors on Wednesday to expand on progress made last week. The bonds traded below 48 cents on July 1, according to Bloomberg.
"H-Hour" for Ukraine is Friday, July 24, when a $120 million interest payment comes due. According to analysts, if Ukraine carries out the payment, it will signal Kyiv authorities’ disposition to reach a deal with the creditors, but they may lose the main lever of pressure in negotiations with creditors - a threat to impose a moratorium.
Imposing moratorium would mean a technical default, threatening to trigger cross-default clauses on Ukraine’s sovereign debt including the $3 billion eurobond Russia bought from the regime of former Ukrainian President Viktor Yanukovych.
According to the agreement with the IMF, Ukraine should save more than $15 billion over the next four years, including $5.2 billion in debt payments this year. Currently, the Finance Ministry insists on the need to write off about 40% of the principal debt. Creditors in turn insist that a 40% write-off is unnecessary. As a concession to creditors, the Finance Ministry has recently proposed additional "cost recovery tools", payments under which to be made when Ukraine's GDP grows higher than currently projected.
Earlier, Finance Minister Natalie Jaresko stated that Ukraine had "plan B" and "plan C" in case of a failure to reach a deal with the country’s creditors.
She noted that the Ukrainian government is working to achieve progress in the agreements with creditors. At the same time, she said, even if such a moratorium is announced, it should not affect the hryvnia exchange rate.