The WSJ reports,"separatists in Donetsk and Luhansk held referendums at the weekend, which Ukraine said were illegal, where organizers said roughly 9 out of every 10 voters called for independence from Ukraine amid the ongoing tensions with Russia.
Should those two regions and neighboring Kharkiv succeed in splitting from Ukraine, the International Monetary Fund–which last month approved a $17 billion aid program for the country–could call for some form of debt restructuring, said Vadim Khramov, an economist at Bank of America Merrill Lynch".
"In a more extreme scenario where all eight southeastern ‘Novorossiya’ regions were to break away (including Dnipropetrovsk, Zaporizhya, Mykolayiv, Kherson and Odessa,) Ukraine’s debt load would become unsustainable and the IMF, which has said it would need to re-design Ukraine’s aid program if the country loses control over its eastern regions, could demand debt restructuring with bondholders taking a sizeable hit, Mr. Khramov said. The IMF couldn’t immediately be reached for comment.
It’s not hard to see why such a scenario would be grim for Ukraine’s ability to service its debts. Those regions, along with Crimea–which was annexed by Russia in March–make up almost half of Ukraine’s gross-domestic product and account for almost two-thirds of the country’s industrial production. That would clobber the country’s revenues and push the government’s debt-to-GDP ratio to almost 120%, Bank of America analysis shows.
Ukraine’s bonds maturing April 2023 are yielding about 10.2%, according to Tradeweb, roughly 2 percentage points more than at the start of April but still about 1 percentage point below February’s highs".
