Ukraine debt sinks as min­is­ter’s exit flags cracks in govern­ment

The Pak Banker - - BUSINESS -

Ukraine's Eu­robonds slumped the most in more than seven weeks af­ter the coun­try's econ­omy min­is­ter re­signed, rais­ing con­cerns the coun­try's ef­forts to over­haul its econ­omy are un­rav­el­ing.

Dol­lar-de­nom­i­nated bonds ma­tur­ing in 2019 tum­bled, with yields ris­ing 34 ba­sis points to 9.946 per­cent by 12:47 p.m. in Kiev, head­ing for the steep­est daily in­crease in more than seven weeks. Spreads on the 2019 notes, which are Ukraine's next ma­tur­ing Eu­robonds, widened the most in three weeks on Wed­nes­day to trade 44 ba­sis points over the coun­try's debt due 2027.

Ai­varas Abro­mavi­cius stepped down on Wed­nes­day say­ing he won't be a "pup­pet" to other state of­fi­cials who he claims are block­ing leg­is­la­tion to turn the war-torn coun­try's econ­omy around and at­tract in­vest­ment. The min­is­ter's res­ig­na­tion high­lights the coun­try's dif­fi­cul­ties in keep­ing a $17.5 bil­lion In­ter­na­tional Mon­e­tary Fund pay­ment on track amid political wran­gling over tax re­form, even as the govern­ment in Kiev se­cured debt re­lief in a re­struc­tur­ing agree­ment with its pri­vate cred­i­tors last year.

"The repric­ing of the Ukrainian bond curve is some­what log­i­cal as not com­ply­ing with the IMF re­quire­ments would mean de­fault," Regis Chatel­lier, an emerg­ing-mar­ket strate­gist at So­ci­ete Gen­erale in Lon­don, who rec­om­mends buy­ing the coun­try's debt on its at­trac­tive carry, said by e-mail. "The fact that he is leav­ing is a con­cern for in­vestors that the com­mit­ment to im­ple­ment the re­forms can fade." Abro­mavi­cius, a Lithua­nian ci­ti­zen, was one of sev­eral for­eign­ers drafted into the post-rev­o­lu­tion cab­i­net to add im­pe­tus to plans to steer the na­tion away from its Soviet past. U.S.-born Fi­nance Min­is­ter Natalie Jaresko led ne­go­ti­a­tions with cred­i­tors on the coun­try's debt over­haul.

The 40-year old min­is­ter's res­ig­na­tion again un­der­scores the fragility of the cab­i­net, said Ti­mothy Ash, head of emerg­ing­mar­ket strat­egy at No­mura In­ter­na­tional Plc. in Lon­don. How­ever, Abro­mavi­cius's exit doesn't mean the cab­i­net will fall "just yet," Ash said. "It will force the is­sue of the loom­ing cab­i­net reshuf­fle and re­fo­cus at­ten­tion on the need to push on and de­liver dif­fi­cult re­forms," Ash said in an e-mailed note.

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