KIEV, Nov. 21 – Ukraine’s state railway company, UkrZaliznytsia, will seek to restructure its $550 million debt for at least three years, raising concern over the country’s ability to repay foreign debts.
“What we’re talking about is changing the schedule of payments of the principal,” Mykhaylo Kostiuk, the genera director of UkrZaliznytsia, wrote in an article for Dzerkalo Tyzhnia weekly published on Saturday.
The plans to restructure the debt comes weeks after another state company, Naftogaz Ukrayiny, managed to reschedule $1.6 billion in foreign debts for five years, including its $500 million eurobond that had been due in September.
The government’s ability to repay foreign debts has been increasingly in doubt since the recent International Monetary Fund postponement of a $3.4 billion loan installment, which cited slow progress with economic reforms.
"Will Ukraine default on its sovereign liabilities? Never say never," Tim Ash, head of CEEMEA research at RBS, said in a recent client note.
European stocks and currencies were hit on Friday by a wave of speculation about the risk of default on Ukraine's sovereign and sovereign-guaranteed debts, Reuters reported Friday.
Ukraine's state railway last week said it was seeking to restructure a $550 million syndicated loan organized by Barclays after failing to repay a portion of it.
Since then, investors and analysts have been examining the implications of the rail debt restructuring on Ukrainian sovereign debt and other quasi-state obligations.
The cost of insuring Ukrainian debt has been rising in recent weeks, after Fitch downgraded the country's sovereign debt rating and the IMF suspended its $16.4 billion standby loan to Ukraine after Parliament passed a bill to raise the minimum wage by over 20% in defiance of the Fund's recommendations.
Prime Minister Yulia Tymoshenko has warned that the economy will face extreme difficulties without the release of a $3.4 billion IMF loan installment this month.
Ukraine's five-year credit default swaps showed little change on Friday, traders said, but are already trading at elevated levels above 30 percent upfront.
This means it costs over $3 million upfront to insure $10 million of Ukrainian debt, in addition to annual costs of $500,000 a year.
Ukraine's hyrvnia, which is closely managed by the central bank, fell slightly. (nr/rt/ez)