Azernews.Az

By Bloomberg

Ukraine’s third-biggest bank failed to secure a three-month maturity extension on $750 million of bonds due this month, raising the prospect of a default that threatens to cloud the country’s restructuring talks.

The State Export-Import Bank of Ukraine didn’t get enough creditors to attend a meeting on Monday to vote on pushing back the redemption of debt due April 27, according to a statement on the lender’s website. The talks mark the first step in the eastern European nation’s broader debt overhaul, aimed at saving $15.3 billion over four years to help soften the blow of a yearlong conflict that choked the economy and drained reserves.

“The parties are sending clear signals that they are not going to yield” in the restructuring, Per Hammarlund, the chief emerging-markets strategist at SEB AB in Stockholm, said by e- mail. “Private investors may think they have the Ukrainian government in a vice, but they could face a disorderly default instead.”

Ukreximbank’s struggle to shore up support for the extension underscores the hurdles facing Ukraine as it seeks to reach agreement with creditors including Franklin Templeton and Russia on sovereign debt before the next review of an International Monetary Fund bailout in June. The Ukrainian lender will hold a second meeting on April 27, the day the bonds are due, with quorum requiring investors representing one third of the bonds, down from two thirds at the first vote.

Dividing Investors

Ukreximbank’s bonds fell 0.24 cent to 61.76 cent on the dollar by 3:57 p.m. in Kiev, narrowing their spread over government notes due in April 2017 to 18 percentage points.

Sovereign notes have traded at a larger discount to the lender’s debt since the Finance Ministry said on April 4 it planned to treat Ukreximbank and AT Oschadbank differently in the wider debt overhaul due to their importance to the country’s economic recovery and banking system. Notes of the export-import bank, which has a total of $1.48 billion of outstanding bonds, rallied 11.5 cents last week after the statement.

Investors and analysts are divided on what the best response is to the vote. Bondholders Bence Sardi, a Dubai-based broker at Mint Partners, and Lutz Roehmeyer of Landesbank Berlin Investment GmbH are favoring a no vote because they expect it will force Ukreximbank to meet its obligations.

Vadim Khramov, an emerging-markets economist at Bank of America Merrill Lynch in London, disagreed, saying Ukraine’s ability to repay is constrained since it cannot use reserves to pay of external debt.

No Money

International reserves slid by almost two-thirds to a record-low $5.63 billion in February before getting a boost last month from a $5 billion injection from the IMF. The country has said a failure to reach new terms on the 29 bonds and enterprise loans it is restructuring would jeopardize the second part of the IMF’s $17.5 billion aid package.

“Most likely there will be a default in two weeks if they do not get an extension,” Khramov said by e-mail Tuesday. “They do not have the money and the government said it will not give them money from reserves.”

In addition to the $15.3 billion savings target, Ukraine is seeking to lower its debt-to-gross domestic product ratio to 71 percent by 2020 and the budget’s gross-financing needs to an average of 10 percent of GDP from 2019 to 2025. Ukreximbank bonds are excluded from the second and third targets, the Finance Ministry said on April 4.

“I expect them to pay in the last two days of the five-day grace period” after the debt matures, said Sardi of Mint, which owns the notes and voted against an extension. “If they default, well Lord have mercy on them. I expect them to pay in full or their banking sector could easily collapse.”

Roehmeyer, who oversees about $1.1 billion of emerging- market debt at Landesbank Berlin, including $1 million of Ukreximbank’s 2015 notes, said he didn’t receive material to vote through a custodian, “which is the usual way.”

“We got aware of the voting through the media and downloaded the proposal from the company’s website, which is unusual and outside the usual settlement scheme,” he said.

A press representative for Bank of New York Mellon Corp., which oversaw the vote as a tabulation agent, couldn’t immediately comment when reached by phone in London.