Ukraine likely to negotiate financing and at least 25% gas discount from Russia.

By bne IntelliNews December 16, 2013

Russia will probably provide a loan to Ukraine if such a request arises, writes RIA Novosti’s Prime news service, citing Andrei Belousov, Putin’s top economic aide and an ex-EconMin. Belousov stated that the current economic situation in Ukraine is difficult and without attracting new loans the stability cannot be maintained.

Ukraine's economy remained in recession in Q3, as the country’s GDP contracted by 1.2% y/y - the fifth consecutive quarter of negative growth. The total (direct and guaranteed) state debt of Ukraine is expected exceed 40% by the end of 2013, and by the end of next year it could reach about 48%. The ratio of debt to GDP will increase because of the fiscal deficit, weak growth, sharply contracting reserves and possible devaluation of the national currency.

At the intergovernmental meeting that will take place on Dec 17, the two sides are expected to sign a number of agreements, including a roadmap on resolving a number of contradictions between Ukraine and Russia in the trade area. Moreover, officials will discuss the main areas of bilateral relations, which include energy, agriculture, investments and others.

The Ukrainian PM Mykola Azarov hopes that as a result of the meeting, Ukraine will be able to negotiate a better gas price. An influential Ukrainian businessman and a close ally of Russian President Vladimir Putin, Viktor Medvedchuk, was quoted as saying that Ukraine can get at least 25% discount on the gas price it pays now.

Azarov also stated that Ukraine plans to raise the question on the resumption of negotiations on the establishment tripartite consortium involving the European side to ensure transparency conditions for transporting gas and management of Ukrainian GTS. He stressed that this issue is very important since the transit of Russian gas through Ukrainian gas transport system to Europe has recently reduced.

Ukraine also continues the negotiations with the IMF on resumption of crediting of domestic economy, the head of EconMin’s department Yevhen Olejnikov announced. However, no final decision has been made yet. Olejnikov noted that in general, the IMF insists on more economical reforms, rather than political, adding that the question remains how are these reforms suitable for the country at the moment.

On Dec 10, the IMF’s managing director Christine Lagarde voiced the IMF's readiness to assist Ukraine financially, but noted that the Ukrainian government should fulfill several requirements, in particular, reform of energy pricing and reform in the monetary sphere. In turn, the Ukrainian President Viktor Yanukovych said that Ukraine is ready to resume negotiations with the IMF for a loan, but only if the Fund agrees to revise the terms of its provision.

According to Ukraine’s First Deputy Prime Minister Serhiy Arbuzov, the country needs at least USD 10bn to avoid default. Unless Russia will be ready to provide financial assistance to Ukraine, already as early as March 2014, the resumption of cooperation with the IMF will be crucial for Ukraine, since the Fund remains the single largest source of accumulating the foreign-currency reserves that are already at a seven-year low. The resumption of cooperation will also facilitate access to external borrowing in the global debt capital markets. In addition, it might signal the European Union to resume cooperation with the country and to provide EUR 610mn as financial assistance.

According to Bloomberg, Ukraine’s national currency has lost 0.2% against the USD to 8.2850 as of 10:25 a.m. in Kiev. The yield on Ukraine’s dollar-denominated notes due 2023 declined 4bps to 10.12%. The price to assure the country’s debt against non-payment for 5 years using credit-default swaps stood at 1,056.61, the highest in Europe, Bloomberg sums up.

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