Azernews.Az

By Bloomberg

Ukraine is facing a solvency and liquidity crisis and will likely miss a bond coupon payment next month and default on its debt, according to Goldman Sachs Group Inc.

The government is unlikely to resolve a disagreement with its creditors on its debt repayment plan in the coming weeks and will likely issue a moratorium before skipping a July 24 coupon payment, analyst Andrew Matheny wrote in a research note on Wednesday. Ukraine has asked creditors to take a 40 percent writedown in principal and accept new bonds tied to its future economic performance under its repayment plan.

“Ukraine will not make the July 24 coupon payment and, as a result, will enter into default at that point,” Matheny said of his base-case scenario in the report. “We do not expect the ad hoc committee to accept Ukraine’s latest restructuring proposal.”

Finance Minister Natalie Jaresko plans to meet investors in Washington next week as she weighs the potential damage from a default against future access to global capital markets. Creditors, who own some $9 billion of Ukraine’s foreign-currency debt, have so far opposed the state’s terms after three months of negotiations.

Templeton Plan

A creditor group led by Franklin Templeton reiterated on Wednesday that its proposal, which uses maturity extensions and coupon reductions to save Ukraine about $16 billion over four years, is the best way forward.

Ukraine’s $2.6 billion of 9.25 percent notes due July 2017 fell 0.21 cent to 49.39 cents on the dollar on Wednesday, according to Bloomberg-compiled prices. The securities have risen almost 12 cents from this year’s low on March 25.

Goldman’s Matheny said Ukraine’s offer of a gross domestic product-linked instrument in its restructuring proposal would allow bondholders to profit from any upside in the event that economic indicators outperform. That might allow the two sides to reconcile their differing views.

“We expect bonds to reflect economic fundamentals more closely, as the market begins to assess the pricing of these potential new instruments,” he said in the report.