By Halia Pavliva
Jan. 28 (Bloomberg) — Ukraine will seek to borrow $500 million to $1 billion by selling Eurobonds as early as next quarter, Economy Minister Bohdan Danylyshyn said, as Europe’s hardest hit economy looks for ways to restructure its debt.
“We have been analyzing the whole debt system,” Danylyshyn said in an interview in Kiev yesterday. “We are in talks with potential participants of the restructuring from the European Union, the U.S. and Japan.” While the country is considering different currencies for the sale, Danylyshyn said he thinks the bonds should be denominated in euros.
The former Soviet state needs to get through a presidential runoff vote on Feb. 7 before turning to markets for financing, Danylyshyn said. Prime Minister and presidential candidate Yulia Timoshenko and her opponent Viktor Yanukovych have both said they’re ready to dispute the outcome of the ballot if they suspect vote rigging. That would prolong the period of political uncertainty that’s left Ukraine’s $16.4 billion International Monetary Fund loan frozen since November.
“The major risk to the economy is the political risk,” Danylyshyn said. Ukraine plans to choose banks to manage the placement in the second half of March, he said.
Ukraine last sold international bonds in June 2007, when it offered investors $500 million in notes at 6.385 percent. The country has $5 billion of foreign-currency bonds outstanding, including 35.1 billion yen ($388 million) of 3.2 percent securities due in December 2010, Bloomberg data show.
The cost to insure against nonpayment by Ukraine using credit-default swaps is the world’s third highest, behind Venezuela and Argentina. Ukraine’s five-year default swaps have dropped to 910 basis points from a record 5,384 basis points in March. This compares to 483 basis points for Latvia and 179 basis points for Russia, Bloomberg data show.
The extra yield investors demand to own Ukraine debt instead of U.S. Treasuries fell 10 basis points to 7.47 percentage points as of 10:20 a.m. in Kiev, down from a peak of 35.93 percentage points in March, according to JPMorgan Chase & Co.’s EMBI+ Index.
Acting Finance Minister Ihor Umanskyi said yesterday Ukraine is in talks to borrow abroad as early as April, and wants to sell debt that will mature in two to three years and pay a “one-digit” interest rate.
The IMF last month agreed to allow Ukraine access to $2 billion more than originally agreed from its foreign reserves to help the country pay for Russian gas. The concession was made to keep the government liquid through the election without releasing loan funds.
Even so, the central bank has signaled it may limit access to reserves, which stood at $26.5 billion at the end of December, as policy makers try to avoid fueling inflation. Consumer prices grew an annual 12.3 percent last month, from 13.6 percent in November, the State Statistics Committee said on Jan. 6.
Danylyshyn said the central bank should agree to print as much as $2.7 billion this year and next to help revive growth and resurrect the economy from 2009’s contraction, which he last month estimated at between 12 percent and 12.5 percent. Output shrank 15.9 percent in the third quarter after declining 17.8 percent in the second and a record 20.3 percent in the first three months of 2009.
“This money should be spent for production, not for consumption and that would allow us to keep inflation under control,” he said. “Inflation is not a problem and there are good chances it will stay below 10 percent this year.”
The winner of the presidential runoff vote will probably keep the current Cabinet in place until the next parliamentary elections, due in 2012, Danylyshyn said.
“There are no reasons for any talks about the new Cabinet in the near future,” he said. “The Cabinet is backed by the majority in the parliament.”
Gross domestic product will expand between 3 percent and 3.7 percent in 2010, as prices for Ukraine’s key exports such as metals, grains and chemicals recover, Danylyshyn said. If the central bank agrees to print more money to finance industrial projects, the economy will probably grow between 5 percent and 6 percent this year and next and 7 percent in 2012, he said.
“We have passed the peak of the crisis,” Danylyshyn said.