IMF decision should support Ukraine’s bonds; impeachment hearings suspended in Brazil

By Christine Van Dusen

Atlanta, Dec. 9 – Ukraine’s bonds received some attention on a Wednesday that also saw Latin American spreads open tighter on volatile trading, then close at their widest levels of the day as political turmoil in Brazil took a toll.

This week the International Monetary Fund eased its lending-into-arrears policy for countries that default on debt held by other sovereigns, a move that is expected to benefit Ukraine, which owes $3 billion on Dec. 20 to Russia and may not be able to pay in time.

“This will allow the IFI to continue to lend to Ukraine, even if it went into arrears,” a strategist said. “While more details will be released in the next few days, the move is positive for Ukraine, as it clears the way for further tranches of the IMF package from next year onwards.”

The IMF’s decision “is positive for Ukrainian sovereign bonds, as it eliminates the risk of losing the IMF support in case of default on Russia-held eurobond,” the report said. “Russia should be prepared for a long wait to get its money back.”

Russia will likely fight the IMF’s decision, the strategist said.

“The decision has no immediate impact for current bondholders – as the new bonds have no cross-default clause to the old ones – but the ability for Ukraine to access further IMF funds would be supportive, subject to any potential court decision,” he said.

Still, challenges remain for Ukraine, he said.

“Ukraine is expected to receive the next IMF tranche of $1.7 billion only next year as the government failed to approve a new tax code and next year’s budget,” he said. “Disappointment has arisen among voters and politicians on the back of austerity measures and corruption scandals.”

Some weakness seen

Against this backdrop, sovereign bonds from Ukraine have experienced “some weakness” so far this week, said Fyodor Bagnenko, a fixed-income trader with Dragon Capital.

“Not much activity, but lower offers in quasi-sovereign banks,” he said. “No joy in the corporates land as the whole metal and mining complex gets marked down in search of bids and clearing levels.”

Brazil in focus

Brazil was trading very well during most of the session, then faltered after the Supreme Court suspended the impeachment proceedings for President Dilma Rousseff, who has been accused of breaking budget laws.

That – plus the news that Moody’s Investors Service put the sovereign’s rating under review – sent Brazilian five-year credit default swaps spreads out to 460 basis points from a tight of 450 bps, the trader said.

They later closed around 452 bps.

Mexico CDS unchanged

Meanwhile, Mexico’s credit default swaps closed mostly unchanged at 170 bps.

“Latin American high yield has Venezuela and PDVSA at center stage, with prices screaming higher before settling down later on in the session,” the New York trader said. “Intermediate and long-dated notes continued to outperform.”

Venezuela’s 2027s closed at 47.50 from 44.25, and PDVSA’s 2017s finished at 61.50 from 61.10.

“Argentina closes higher as well,” he said.

African bank advances deal

In deal-related news, African Development Bank launched a $500 million issue of green bonds due in December of 2018 at mid-swaps plus 14 bps, matching price talk.

Deutsche Bank, Barclays and Credit Agricole CIB are the bookrunners for the new deal.

The company last week priced an additional $250 million of its 1 5/8% notes due Oct. 2, 2018 at 100.79. The notes were consolidated with the bank’s existing $1 billion 1 5/8% notes due in 2018, which were issued on Oct. 2.

African Development Bank is based in Abidjan, Cote d’Ivoire.

© 2015 Prospect News.
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