Coming back to the international bond market

Ukraine has restructured its external commercial debt more than once, and has each time returned to the international bond market afterwards. That sequence is worth describing, because re-entry is not automatic.

What re-entry requires

A completed restructuring with high participation. Holdout creditors who did not accept the terms remain a legal risk, and an issuer with unresolved litigation cannot price a new bond properly.

A credible macroeconomic programme, generally with the Fund, which gives investors a framework and an independent assessment.

A credit rating, which after a restructuring starts low and rises only with a payment record.

And investor relations in the literal sense: someone who answers questions from bondholders consistently, publishes data on schedule and does not surprise the market.

What the first issue after a restructuring looks like

Expensive. The yield demanded reflects both the country risk and the memory of the previous restructuring, and the first issue is priced by investors who were in the last one.

It is nonetheless worth doing, because the objective is not the money raised on that occasion. It is establishing a price curve, so that subsequent issues have a reference and the corporate sector has a benchmark against which it can borrow.

The corporate consequence

A Ukrainian company cannot borrow abroad more cheaply than its sovereign. The sovereign curve is the floor for everyone, which is why a state's market access matters directly to private firms that will never issue a bond.

Looking forward

Reconstruction will require capital markets alongside official financing. Re-establishing the sovereign curve is therefore a piece of reconstruction infrastructure, and it is being built now.

Selling again to somebody you have cost money is the hardest thing in commerce, and there is only one way: start small and keep your word. I have lived it in supplier relationships — after one late delivery, trust returns not through a discount but through three consecutive deliveries on time. For a state the mechanism is identical; only the scale and the interest differ.