Default Risk Rising Despite Political Deal
Despite details of an EU brokered agreement between Ukrainian President Viktor Yanukovych and the opposition beginning to emerge, significant uncertainty still remains as to whether this will ease tensions on the ground. In our view, anything short of Yanukovych's immediate resignation will fail to appease protesters, although he is likely to resist relinquishing power until he can ensure immunity from prosecution and safeguarding of personal assets. Political considerations aside, Ukraine is in need of urgent external financing if it is to prevent a much deeper devaluation of the hryvnia, which as of the time of writing has weakened to UAH9.2500/US$.
Previously promised Russian funding is in serious question now that Yanukovich appears to be leaning on EU support and moving towards relinquishing power, while it is as of yet unclear if the EU or IMF would be willing to fill any potential financing gap. The 12.8% devaluation of the hryvnia since December will have significant reverberations across all sectors of the economy, with the banking sector especially at risk due to a high proportion of FX denominated loans and significant FX mismatch on the balance sheet. However, a continued slide in the currency, which is all but certain barring external assistance in the coming weeks, will quickly put Ukraine at serious risk of defaulting on its hard currency debt.
|Depreciation Raises Default Risk|
|Ukraine - UAH/US$ Exchange Rate|