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'Friendly' Ukraine Debt Talks Seen as Minister to Meet Creditors

Thursday, 12 Mar 2015 10:30 AM

Barclays Plc and Commerzbank AG are predicting Ukraine will avoid pushing bondholders to reduce the face value it owes as talks begin to ease its debt burden.

Finance Minister Natalie Jaresko plans a video conference from Kiev with creditors on Friday. The process will stay "friendly" as Ukraine is reliant on bondholders' goodwill to borrow again as soon as this year, according to Commerzbank. Although holders will need wait longer for payment, it's unlikely Ukraine will seek to reduce the principal in a so- called haircut, the analysts from both banks wrote.

"Ukraine aims for a relatively friendly restructuring approach without punitive notional haircuts," wrote Andreas Kolbe and Eldar Vakhitov at Barclays in London. The government may cut annual interest on the bonds to 5 percent, with no coupons or principal paid until 2019, according to their report late Wednesday.

The International Monetary Fund agreed Wednesday to provide $17.5 billion to rescue the economy shattered by a year of fighting with pro-Russian separatists. While an immediate $5 billion payment will mean Ukraine has just enough to cover debt obligations and the current account deficit for the rest of this year, the government will want to avoid depleting its foreign- exchange reserves, said Simon Quijano-Evans, the London-based head of emerging-market research at Commerzbank.

"A friendly agreement would allow Ukraine to tap international markets again this year, assuming the situation in eastern Ukraine continues to calm," Quijano-Evans said by e- mail Thursday.

The cease-fire with insurgents and expectations of IMF aid sent the nation's foreign-currency bonds rallying 7.1 percent this month, the best performance among 59 developing countries in the Bloomberg Emerging Market Sovereign Bond Index. Investors have lost 34 percent in the past 12 months, the most worldwide.

Ukraine's $2.6 billion of benchmark bonds due July 2017 pared a three-week high, dropping 1.6 cents to 45.72 on the dollar by 4:00 p.m. in Kiev. The hryvnia gained 1.8 percent to 21.6 per dollar.

With the IMF estimating government debt will rise to 94 percent of economic output this year, Ukraine needs to ease the pressure on state finances, Jaresko told reporters in Kiev Thursday. The government expects the economy to shrink by as much as 11.9 percent this year.

Jaresko will discuss the IMF loan and "further consultation principles" with bondholders in tomorrow's conference, which begins at 4 p.m. in Kiev.

About $2.7 billion, or more than half of the IMF's initial payment, will be allocated to support the budget, the IMF said in a statement on Wednesday.

Foreign-currency reserves dropped to $5.6 billion in February, the lowest in more than a decade, amid attempts to ease the hryvnia's depreciation and increased state spending on natural gas payments to Russia and the cost of fighting insurgents.

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Barclays Plc and Commerzbank AG are predicting Ukraine will avoid pushing bondholders to reduce the face value it owes as talks begin to ease its debt burden.
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Thursday, 12 Mar 2015 10:30 AM
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