Azernews.Az

By Bloomberg

Bonds of the Ukrainian bank that’s asking creditors to vote in favor of a three-month maturity extension rallied above 60 cents, signaling holders are becoming more optimistic on what they’ll get back in restructuring.

State Export-Import Bank of Ukraine’s $750 million of notes due April 27 rose 15.17 cents on the dollar in the last two days to 63.17 by 8:36 p.m. in Kiev on Wednesday. Bondholders have until Thursday at 4 p.m. in London to vote on a proposal to push back the debt maturity to July 27.

The Finance Ministry helped spur this week’s advance after saying on April 4 bonds of Ukreximbank and AT Oschadbank will be treated differently from the government in a wider debt overhaul aimed at saving Ukraine $15.3 billion. The price gap between Ukreximbank’s notes and benchmark sovereign bonds more than doubled this week to 21 cents.

“The rally might indicate some realization that these banks might get better restructuring terms,” Vadim Khramov, an analyst at Bank of America Corp. in London, said by phone on Wednesday. There’s a “general understanding that treatment will be different,” he said.

Ukraine, whose largest creditors are Franklin Templeton and Russia, is seeking to restructure 29 bonds and enterprise loans by the end of May to qualify for the next tranche of a $17.5 billion International Monetary Fund loan. The country needs aid to avoid draining more of its reserves after a yearlong conflict in the country’s east drove them to a record-low $5.6 billion in February.

Debt Vote

While Khramov said creditors risk triggering a default if they don’t vote yes by Thursday, Landesbank Berlin Investment GmbH and International Credit Research LLC said rejecting the maturity extension may be enough to force Ukreximbank to pay the notes on time.

Allowing the lender to default would risk triggering a run on deposits and could do more harm that good, Stan Manoukian, a founder of Independent Credit Research, said on Tuesday from Agoura Hills, California. The distressed debt research company is advising clients to buy Ukreximbank’s notes, he said.

His comments were echoed by Lutz Roehmeyer, a money manager at Landesbank Berlin Investment, who owns Ukreximbank notes and is rejecting the motion.

“A default would cause a loss of confidence and trust for Ukrexim,” Roehmeyer said by e-mail on Wednesday. “It would harm the bigger sovereign restructuring more than it helps to save some dollars by not paying back the bonds.”

Still, bondholders may be disappointed if they expect to avert a default, according to Khramov at BofA.

IMF Targets

The ministry said on April 4 that Ukreximbank’s debt will be subject to only one of three IMF-mandated targets, namely the requirement that the country cut $15.3 billion from public- sector financing costs over four years.

Restructuring the lender’s notes is “essential” to meeting this target, the Finance Ministry said in an investor presentation on March 13. This means Ukraine isn’t allowed to tap reserves to pay the bond or to allow Ukreximbank to partially settle the debt, according to Khramov.

Ukreximbank’s bonds outperformed the government’s $2.6 billion of debt due in July 2017 on Wednesday, with the sovereign securities adding 1.4 cents to 41.67 cents on the dollar. A price of about 40 cents signals creditors will face writedowns to their principal holdings of about 20 percent, Bank of America said in March.