Azernews.Az

By Bloomberg

Ukrainian bonds rose for a fifth week as the government made an interest payment on time, showing negotiations toward a $19 billion debt restructuring are making progress.

The country’s $2.6 billion dollar-denominated bond maturing July 2017 rose 0.1 cent to a five-month high of 55.38 cents on the dollar by 12:21 p.m. in Kiev, extending this week’s advance to 1.67 cents. Ukraine made a $120 million payment due Friday on this note, according to person with knowledge of the situation, who asked not to be identified because details are private. Bondholder Arca SGR acknowledged receiving the cash.

The payment signals negotiations between Ukraine and a creditor committee led by Franklin Templeton have advanced enough to prevent Ukraine from acting on its threat to impose a moratorium. The war-stricken country had said it could stop payments to exert pressure on its main creditors to accept losses on their principal holdings, a point of contention that stalled progress for more than two months.

“The market is relieved that a moratorium has not been implemented,” Fyodor Bagnenko, a Kiev-based bond trader at Dragon Capital, said by e-mail on Friday. “Most likely this is a sign of some progress in negotiations, which is supportive for the market.”

The eastern European nation was plunged into a recession during a 16-month conflict with pro-Russian rebels in its easternmost regions, which also drained its foreign-currency reserves.

Talks Continue

Ukraine has called for a 40 percent so-called haircut on the bonds, while the four-member creditor group owning $8.9 billion of the nation’s debt has insisted such losses aren’t necessary to comply with terms of an International Monetary Fund rescue loan. The Washington-based fund has stipulated the country should, among other targets, reduce its debt to 71 percent of economic output by 2020 to qualify for the $17.5 billion package, part of a broader $40 billion bailout.

Advisers to the two sides continued negotiations this week in preparation for discussions between the country’s Finance Ministry and bondholders, a person familiar with the talks said Thursday. The IMF may disburse the next part of the loan to Ukraine after a July 31 board meeting, spokesman Gerry Rice said Thursday in Washington.

“The authorities and the ad hoc creditor committee have been making good progress,” Rice said Thursday. “Further progress is expected by July 31.”

The price of the 2017 security has rallied 6.9 cents this month, helping drive a rally that’s handed investors in Ukrainian Eurobonds returns of 10 percent in July, the most in the Bloomberg U.S. Dollar Emerging Market Sovereign Bond Index. Ukraine has a 27.9 percent probability of defaulting on its debt in the coming year, the highest in the world, according to Bloomberg’s default risk model.

“We have received the coupon payment on the 2017 bonds,” Giuliano Palumbo, a Milan-based money manager who helps oversee $3 billion in emerging-market debt for Arca SGR, said by e-mail on Friday.