In March, prices for the entire line of government bonds increased by 19%-22% and reached USD 340-370. The growth was driven by the IMF’s communication on the mandatory restructuring of external commercial debts – government bonds and GDP warrants. It is the terms of the restructuring – the amount of write-off from the face value of the government bonds and the new coupon rate – that will determine the attractiveness of investments in Ukraine’s Eurobonds.
Our view:
Cooperation with the IMF until 2028 requires Ukraine to maintain macroeconomic indicators at agreed levels. The main indicator of economic sustainability monitored by the IMF is the debt/GDP trajectory for the next 4 years. Active military operations will result in restrictions on investment in the economy and export opportunities for Ukraine in 2024, and as a result, moderate economic growth. Therefore, the IMF requires the government to reduce the amount of external debt by negotiating a restructuring with Eurobond holders with a significant percentage of liabilities written off. While at the end of 2023, a formula of 75% write-off of the face value and a 2% coupon on the remaining balance was discussed, in March 2024, according to Bloomberg, Eurobond holders forced the government to improve the restructuring terms to 50% write-off of the face value and a 4% coupon on the remaining balance. The new restructuring terms inspired investors to find Ukraine’s Eurobonds attractive, which was reflected in their prices. The final terms may be even better, but the 50% write-off with a 4% coupon on the balance makes the government bonds an attractive investment instrument for the next 4 years, with a 16% annual yield. OTP Capital believes that the Ukrainian government will avoid a default on the government bonds and will agree with the holders on restructuring. The terms of the restructuring will be acceptable to the government, the holders, the IMF and allies.
