Templeton-Led Group Swaps Barbs With Ukraine Over Debt Talks

Ukraine and a creditor group led by Franklin Templeton traded blame over the lack of progress in debt talks, jeopardizing the eastern European nation’s $23 http://www.bloomberg.com/news/articles/2015-05-12/ukraine-creditors-disappointed-with-progress-as-debt-offer-filed restructuring just weeks before a deadline.

“The one known” member of the investor group declined an opportunity to meet with Ukrainian Finance Minister Natalie Jaresko last week and the creditor committee has shown a lack of transparency by declining to reveal its members, the government said in an e-mailed statement on Tuesday. Hours earlier, bondholders called the lack of progress “disappointing” and pointed to the government’s failure to engage since the committee submitted an initial offer four weeks ago.

The nation’s bonds ended a four-day advance as the clash of opinions were seen to weigh on the chances of an agreement before the International Monetary Fund completes a review of a $17.5 billion aid deal by June 15. Ukraine is seeking new terms on its debt to meet the objectives of an IMF lifeline after a yearlong conflict in eastern regions hammered its economy and left foreign-currency reserves languishing near record lows.

“Both parties want to play hardball,” Andreas Rein, a money manager who helps oversee $470 million in assets, including Ukraine Eurobonds, at Uniqa Capital Markets GmbH in Vienna, said by e-mail. “I don’t think the June deadline will hold.”

Franklin Templeton is the only bondholder to identify itself as part of the five-member creditor committee. The refusal to reveal the other members is “a highly unusual departure from standard practice,” the Finance Ministry said.

Stumbling Block

The sovereign’s $2.6 billion of bonds maturing in July 2017 dropped 0.46 cent to 47.56 cents on the dollar by 7:07 p.m. in Kiev, trimming this month’s increase to 1.93 cents. The notes fell as low as 37.75 cents in March on speculation creditors will have to accept substantial losses due to Ukraine’s dire economic situation.

A key stumbling block in the restructuring is whether a reduction to the face value of the bonds is needed. While Jaresko insisted as recently as last week that a combination of cuts to the principal and coupons as well as a maturity extension was crucial to meeting IMF targets, creditors said Tuesday the terms can be met without forcing them to accept such losses.

Ukraine last month rejected the group’s first proposal, because it said it only included a maturity extension.

“Despite this disappointing lack of progress, the committee has now delivered a detailed restructuring proposal based upon IMF assumptions,” the creditor group said on Tuesday. “This is a compromise that balances the stated debt-reduction interests of Ukraine and one of the investors’ objectives of avoiding a principal reduction.”

‘Substantive Engagement’

The holders, which own about $10 billion of Ukraine’s debt, said there had been “no substantive engagement” from Ukraine’s government and advisers since their initial offer. Speaking later on Tuesday, Jaresko said creditors were holding up the restructuring, according to the Unian newswire.

“Even though Ukraine and the IMF have repeatedly said that the three targets for the debt operation (liquidity, sustainability and payment capacity) have to be met, the committee in its public statements focuses exclusively on the liquidity aspect, and refuses to acknowledge the debt sustainability objective,” the Finance Ministry said in today’s statement.

“The ministry is also concerned that instead of engaging directly in constructive negotiations, the committee chooses to communicate unconstructively through the media,” it said.

IMF officials were due to arrive in Kiev today to start a review of progress on the economic objectives set out in its aid program as analysts project Ukraine’s economy will shrink 5.7 percent this year after contracting 6.9 percent in 2014.

‘Vital’ Deal

Before the country got its first $5 billion IMF loan injection in March, it had drained its foreign-currency reserves by almost two-thirds in just 12 months to as low as $5.6 billion.

The IMF targets include a goal to save $15.3 billion in four years as well as lower debt-to-gross domestic product and budget financing needs. The nation also needs to restructure its national energy company and implement an anti-corruption program among other measures.

While the IMF has said it’s “vital” that a deal with creditors is completed by the end of its review in mid-June, it has stopped short of saying that Ukraine won’t get the next part of its loan if talks are still ongoing.

“It’s going to be very challenging to find an agreement by the end of May,” Jakob Christensen, an economist at Exotix Partners LLP in London, said by phone on Tuesday. “The big question is how the IMF will react to a lack of agreement on the debt talks.”

http://www.bloomberg.com/news/articles/2015-05-12/ukraine-creditors-disappointed-with-progress-as-debt-offer-filed