Back in April, five leading owners of Ukrainian bonds formed a committee to negotiate a restructuring with their debtor – and avoid losing money on their approximately $10bn principal in the process.
Now count the names in this release on Monday…
Statement by the Ad-hoc Committee of Noteholders to UkraineThe Committee is pleased that the Ministry of Finance of Ukraine (the “Ministry”) wishes to accelerate discussions around a potential debt solution for Ukraine and confirms that it welcomes the opportunity to engage constructively with the Ministry.The Committee was formed at the request of the Ministry and consists of funds managed and/or advised by BTG Pactual Europe LLP, Franklin Advisers Inc., TCW Investment Management Company and T. Rowe Price Associates, Inc. who hold approximately $8.9bn of Ukrainian Debt. The Committee and their advisers are in regular contact with additional holders of the Notes who, together with the Committee, represent in excess of $10.0bn of Ukrainian Debt.As previously announced, the Committee has provided the Ministry with a detailed proposal that the Committee believes meets the objectives of the Ministry without any principal debt reductions and would provide the country with a solid foundation for economic recovery.The Committee submitted the outline of a proposed consensual restructuring last month, followed by a detailed proposal on May 9th. The Committee sees no reason why substantive discussions on this important issue should not commence immediately.
After some prodding by Ukraine’s ministry of finance and Larry Summers, fourbondholders have revealed their identities, and there’s a $10bn figure which is made up of “additional” investors who aren’t involved in the committee but are being kept informed of its progress.
As the WSJ reported earlier, the missing name is Ashmore, the emerging markets investor.
That leaves three US mutual funds and a Brazilian bank to argue the case for being paid back their principal by a borrower which is undergoing inflation approximating 60 per cent, a collapse in the size of its economy in US dollar terms in the last year, and an undeclared conflict in its eastern territory.
The “detailed proposal” is built upon a view that this is primarily a liquidity crisis for the sovereign. We haven’t seen the details.
We’ll let you know how they get on.
In the meantime, beyond all this Scooby Doo villain-style unveiling…
It’s worth going back at looking at the form of the Ukrainian response after the ad hoc committee complained the government had offered “no substantive engagement” with its proposal the first time around.
It repeats references to Ukraine’s “transparency”, “responsiveness” and “good faith” copiously. As any scripophile would recognise, that follows the sentiments of (say) the IIF Principles on Stable Capital Flows and Fair Debt Restructuring quite closely. This seems intended to give Ukraine the rhetorical high ground if negotiations broke down.
Which might seem hair-splitting. But then there is the IMF’s Lending into Arrears policy. This usually forbids the Fund to lend to a government in default on private creditors unless the borrower has shown it is making a “good faith effort” to negotiate a restructuring.
This could be read as Ukraine hardballing its bondholders — but also as leaving time and resources to get to a deal on the bonds, which is going to be very complicated whatever form it takes.
That may in part be because of the bondholder name that hasn’t come up in this fracas.
Related links:Ukraine’s weaponised debt – Free Lunch, FT
An arbitration between Russia and Ukraine? – Credit Slips
An arbitration between Russia and Ukraine? – Credit Slips
