Bloomberg News

Ukraine 2014 Bonds Extend Weekly Slump as Default Concern Mounts

December 06, 2013

Ukraine’s dollar debt due in June fell, set for a second weekly slide, on speculation the eastern European country’s risk of default is intensifying as the biggest street protests since 2004 continue and reserves slump.

The yield on the $1 billion of 2014 notes climbed 94 basis points, or 0.94 percentage point, to 18.4 percent by 2:03 p.m. in Kiev, taking this week’s increase to 1.79 percentage points, according to data compiled by Bloomberg. The rate on the dollar bonds due in April 2023 was little changed at 10.37 percent. The Ukrainian Equities Index (UX) lost 0.4 percent, set for the first weekly decline in a month.

Ukraine’s dwindling foreign-currency reserves are eroding the central bank’s ability to prop up the hryvnia as the country faces repayments of almost $17 billion in sovereign debt due in the next two years. The government will struggle to secure international rescue funding, Standard Bank Group Ltd. said in an e-mailed note today. The currency weakened for a fourth day against the euro, losing 0.1 percent to 11.2308.

“Default risk is being seriously underestimated” and the country’s bond prices “do not adequately capture the risk,” Timothy Ash, a London-based head of emerging-markets strategy at Standard Bank, wrote in the note. “The current ‘muddle-through’ scenario is no longer sustainable.”

‘Acute’ Needs

The upfront cost of insuring $10 million of Ukraine’s debt for five years fell by $32,000 today to $2.03 million, according to data provider CMA, which is owned by McGraw Hill Financial and compiles prices quoted by dealers in the privately negotiated market. That’s in addition to $500,000 annually and signals a 51 percent chance of default, according to CMA.

Ukrainian police began arresting people as anti-government protests held out for a 15th day demanding snap parliamentary elections after President Viktor Yanukovych chose closer ties with Russia over a pact with the European Union.

The country’s bonds gained yesterday after Yanukovych said China will provide $8 billion in investment to start industrial projects. While the Chinese funds could help the Ukrainian economy, they may not solve the country’s “acute” need for short-term funding, according to Regis Chatellier, a London-based director of emerging-markets credit strategy at Societe Generale SA.

“I remain defensive on Ukrainian bonds, as more protests are likely at this stage,” he said in a report to clients today.

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net


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