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UPDATE 1-Ukraine bond selloff intensifies; funds brace for restructuring
January 22, 2015 / 2:21 PM / 3 years ago

UPDATE 1-Ukraine bond selloff intensifies; funds brace for restructuring

* Yaresko comments taken as call to restructure

* Restructuring would impose losses on many funds

* Franklin Templeton, PIMCO, Blackrock among holders (Updates bond prices, adds investor comment and link to factbox)

By Chris Vellacott and Sujata Rao

LONDON, Jan 22 (Reuters) - Ukraine’s sovereign dollar bonds slumped on Thursday after the government said it would seek talks with bondholders to “improve debt sustainability”, interpreted by many as a call to restructure the debt.

The comments by Finance Minister Natalia Yaresko are being seen as a call for creditors to write down some of Ukraine’s debt as the country looks set to get a bigger and longer-term financing facility from the International Monetary Fund

A restructuring will saddle many funds with losses, not least Franklin Templeton star fund manager Michael Hasenstab, who last year was estimated to hold over a third of Ukraine’s outstanding Eurobonds. Other bond giants PIMCO and Blackrock are also among holders

But the news comes as no surprise.

“From Ukraine’s viewpoint, they are probably doing the sensible thing by trying to ease (the) short-term debt burden,” said Zsolt Papp, client portfolio manager at JP Morgan Asset Management.

“The concern was they would say they need to restructure without having any funding in place, but with an IMF package there is no worry about Ukraine going into complete financial disarray.”

The news pushed Ukraine’s 2023 bond 1.2 cents lower to trade under 50 cents in the dollar for the first time ever, according to data from Tradeweb. Its other bonds fell roughly 2 cents across the curve.

Ukraine’s yield spread over U.S. Treasuries, the premium investors demand to hold the country’s debt over safe haven bonds, widened 40 basis points to 2,809 bps, having earlier reached record levels.

The debt is also being pressured by an intensification of fighting in eastern Ukraine between government forces and pro-Russian separatists, and bondholders are bracing for more pain to come.

“We are concerned that prices could go a little lower, even though the market has priced in a significant probability of not just a reprofiling, but actually a net present value haircut as well.” said Koon Chow, emerging market strategist at UBP, which holds Ukraine sovereign dollar debt. (Reporting by Sujata Rao and Chris Vellacott; Editing by Mark Trevelyan)

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