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

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.