Bloomberg: Ukraine bonds rally on bets of compromise with creditors

The nation’s $2.6 billion of notes due July 2017 climbed 1.4 cents to 56.55 cents on the dollar at 2:30 p.m. in Kyiv, the first gain on a closing basis this month. Finance Minister Natalie Jaresko is traveling to San Francisco for the first direct talks in more than a month with the Franklin Templeton-creditor group, according to Bloomberg.

Time is running out to get a deal agreed, voted on by bondholders and executed before a $500 million security comes due on Sept. 23. An agreement also needs to be reached before Ukraine undergoes the second review of its International Monetary Fund bailout bailout next month. This week’s talks will be the “final opportunity” to reach a deal in time to change terms on that bond, the Finance Ministry said in a statement on its website on Friday.

“It would probably be naive to expect an all-encompassing announcement after tomorrow’s talks, but they may agree to the key parameters,” Fedir Bahnenko, a Kyiv-based bond trader at Dragon Capital, said by e-mail on Tuesday. “The two sides are not that far apart and the IMF doesn’t seem to be pressing for a more radical haircut.”

Read alsoSome bond investors say Ukraine good betThe debt talks, now in their fifth month, have faltered over a disagreement about the amount of debt relief bondholders should offer the war-ravaged nation.

The creditor committee, which holds about $8.9 billion of the bonds being restructured, was said last month to propose a 5% cut to face value, contingent on economic performance, while a person familiar with the talks said Ukraine was asking for a 40 percent haircut in June.

While the IMF is forecasting Ukraine’s debt will climb to 94% of GDP  this year, it could be “a couple of percentage points higher” if there is no debt operation, the fund’s mission chief for Ukraine, Nikolay Gueorguiev, said in a conference call on August 4. That could imply the lender is looking for a principal writedown of about 12-18%, Bagnenko said.