UPDATE 1-Ukrainian bank's Eurobonds hurt after it seeks restructuring

Wednesday, 27 Nov 2013 | 9:21 AM ET

MOSCOW, Nov 27 (Reuters) - A Ukrainian bank has sought to restructure its Eurobonds, becoming the first casualty of jittery markets since President Viktor Yanukovich walked away last week from a free trade pact with the European Union.

From near par on Tuesday, the $95 million in loan participation notes issued by Finance and Credit bank were trading at 70-80 cents on the dollar, traders said on Wednesday, after the bank said it would seek a restructuring through Russia's VTB Capital.

Under the proposal offer, the 10.5 percent LPNs due for repayment in 2014 would be exchanged for a combination of cash and new bonds with a 9.125 percent coupon due for repayment in 2019.

One fund manager in London estimated the present value of the exchange offer at around 85 cents on the dollar, implying a sharp loss to investors.

"I would have been very upset if I were a bond holder," said the fund manager.

"It was worth 98 yesterday and now it is 85 in the best case. I think this shows the perils of investing in EM (emerging markets) corporate bonds."

Although the bond issue is quite small, its restructuring could send an early warning of worse to come in Ukraine, where the government needs to refinance billions of dollars in external debt from a dwindling pool of foreign reserves.

Natalia Napadovskaya, a spokeswoman for the bank, said the restructuring was a "technical" decision that had been in the works for weeks and was related to overall market conditions.

"It has been very difficult for Ukrainian companies to issue new debt on foreign markets," Napadovskaya said. "We have made the decision to restructure our debt."

Hopes of Ukraine initialling a free trade accord at an EU summit in Vilnius unravelled when it became clear that Kiev had not done enough to reform its economy to qualify for a new standby loan of as much as $15 billion from the International Monetary Fund.

Russia says it stands ready to provide financial support but no deal is on the table to cut the high price Ukraine pays for its gas imports, which imposes a huge burden on the state as it subsidises the cost to households.

Finance and Credit is controlled by industrialist Kostyantin Zhevago, who is also majority owner of London-listed, Ukraine-based iron ore producer Ferrexpo. The bank restructured the same Eurobonds bonds during the 2009 financial crisis.

Zhevago's net worth was estimated by Forbes magazine at $1.5 billion in March, down from a peak of $3.4 billion in 2008.