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Ukraine Troubles Multiply

Ukraine Troubles MultiplyUkraine Troubles Multiply

Ukraine may have dropped out of the headlines but its economic troubles are worsening as it continues to battle with separatists — and bondholders.

The country’s economy is seen shrinking by a steep 5.5 percent this year by the International Monetary Fund (IMF). However, this could prove optimistic — Exotix, a merchant bank specializing in emerging markets, sees Ukrainian gross domestic product (GDP) shrinking by nearly 10 percent in 2015, CNBC reported.

“Ukraine is now fighting on two fronts, in the East with the separatists and now with the bondholders in the context of discussions on restructuring the sovereign and state-owned bank debt,” said Jakob Christensen, senior economist at Exotix, in a research note on Thursday.

On Friday, the European Commission signed off on 1.8 billion euros ($2.0 billion) of extra financing for Ukraine, after the Ukrainian government sought the right from its parliament this week to suspend foreign debt payments.

“If the moratorium is imposed, it would be a default event according to the bond documentation, which would be quite messy for both sides,” said Christensen.

He added that the negotiations posed downside risks to bond prices and that Exotix had downgraded its recommendation on the debt to “sell” from “hold” as a result.

In addition to aid from Europe, Ukraine has received a $17.5 billion bailout from the IMF. This program is due for review next month, by which point the country is expected to have restructured its debt burden to make savings of around $15 billion. However, the review may be delayed as Ukraine insists that such savings cannot be reached without a haircut to the principal (the amount borrowed that remains unpaid) — an argument that bondholders reject.

 

Financialtribune.com