KYIV, Sept. 6 - Ukraine is preparing to issue its first dollar-denominated debt since the 2014 Russian annexation of Crimea in the latest test of investors’ appetite for riskier but higher-yielding sovereign debt, the Financial Times reported.
The nation has mandated JPMorgan, BNP Paribas and Goldman Sachs as bookrunners on the deal, say people familiar with the situation.
It will be the first time Ukraine has approached the markets since it raised a $3 billion bond in 2013 in a troubled sale on which Kiev defaulted two years later.
That debt was then restructured, with creditors taking an immediate 20 per cent write-off. But that triggered a bitterly fought lawsuit in which Russia, an investor in the bond, argued that Ukraine had breached the terms of the bond when it failed to repay the money.
Ukraine countered by arguing that the annexation had damaged its economy and hindered its ability to repay debts.
The case did not proceed to full trial after the High Court in London ruled in March this year that Kiev had no “justiciable defense”.
Ukraine is appealing that finding, and the case will be heard next year.
Oleksandr Danylyuk, Ukraine’s finance minister, said in June that the plan to tap the bond markets would not necessarily depend on whether the International Monetary Fund approves the latest payment in its $17.5 billion rescue program this autumn.
Moody’s, the rating agency, has upgraded Ukraine to Caa2 from Caa3, and updated its outlook from stable to positive. It cited “structural reforms that, if sustained, are expected to improve government debt dynamics” as one of the main reasons for the decision.
Timothy Ash, a strategist at BlueBay Asset Management, said yields on Ukrainian debt have fallen steeply in recent months, reflecting an improved outlook. The 10-year bond is yielding about 7.45 per cent, down 200 basis points since the spring, said Mr Ash. However, he warned that early access to the capital markets could erode the government’s fiscal discipline.
“While securing market access is obviously a positive for Ukraine, as will liability management to smooth out the debt service profile, my long-stated concern has been that coming too early to market would weaken IMF conditionality,” he said.
“Accessing the market means that Ukraine has little need for IMF cash, so as we enter the run-up to elections in 2019, there will be even less pressure on policymakers to deliver on the IMF-reform agenda, which is already lagging.” (ft/ez)