Azernews.Az

By Bloomberg

Ukraine’s bonds tumbled after the International Monetary Fund said it can keep supporting the country even if it stops payments to bondholders.

The nation’s $500 million of notes due September, the first of its international obligations to come due, had their biggest decline in almost three months. The IMF’s policy allows it to lend when a country has arrears with private creditors, First Deputy Managing Director David Lipton said Tuesday in Washington.

The comments rekindled fears that Ukraine may opt to default on its international debt if creditors don’t submit to its demands for cuts to the face value of about $19 billion of bonds. Ukraine passed a law last month allowing it to impose a moratorium on debt payments.

“The IMF statement may increase the perception that Ukraine will use the debt moratorium,” Dray Simpson, the London-based managing director of emerging markets at Cantor Fitzgerald Europe, said by e-mail on Wednesday. “It really comes down to the creditors and whether they’re willing to compromise or just dig their heels in and say no way to a haircut.”

The notes due Sept. 23 dropped 2.26 cents, the most since March 18, to 53.25 cents on the dollar at 1:05 p.m. in Kiev. The $2.6 billion of securities maturing in July 2017 fell 1.11 cents.

Ukrainian Finance Minister Natalie Jaresko, who is holding talks with the IMF in Washington this week, said in an interview on May 21 that the fund would be the judge of whether the moratorium law could be used.

Ukraine and its creditors are still divided after two months of talks over how the nation’s debt burden should be reduced, with Ukraine seeking a principal writedown and the creditors insisting that IMF targets can be met with maturity extensions and temporary cuts to coupons.2

Ukraine has two coupon payments due on sovereign bonds next week, including $75 million it owes by June 20 on a Eurobond that Russia bought from the regime of former President Viktor Yanukovych before he was overthrown in February 2014.

Russia said on May 20 it will take Ukraine to court if the government in Kiev fails to make its next coupon payment.