Ukraine Debt Restructuring Talks Scheduled as Tensions Thaw
Ukraine’s Finance Minister signaled that talks with creditors over a $23 billion debt restructuring are progressing as advisers meet to reach a deal that would prevent the country from freezing coupon payments.
The advisers, who haven’t convened in person in about a month, are planning meetings in London in the coming week after a creditor group led by Franklin Templeton disclosed its membership on Monday, Natalie Jaresko said on Thursday. Lazard Ltd. is consulting the eastern European nation on its debt overhaul, while the main creditor committee holding $8.9 billion of the nation’s debt hired Blackstone Group International Partners LLP.
“The advisers are scheduling meetings right now with the hope of scheduling a direct meeting right after” between the government and creditors, Jaresko said in a phone interview from Riga, Latvia. “I’m just going to continue to work towards making progress and reaching a collaborative agreement.”
The minister’s comments signal a relaxation of tensions after both sides blamed each other last week for stalling the process. Ukraine’s government has been insisting that bondholders accept a writedown on their principal holdings if it is to achieve the IMF’s three targets and qualify for the next part of a $17.5 billion loan. The creditor group has repeatedly said a so-called haircut isn’t necessary to meet the IMF conditions.
The three objectives of the restructuring are to save $15.3 billion over four years, lower debt to 71 percent of gross domestic product by 2020 and the budget’s gross financing needs to an average of 10 percent of GDP from 2019 to 2025. The nation also needs to restructure its national energy company and implement an anti-corruption program, among other measures.
Bonds Gain
Ukraine’s $2.6 billion of bonds maturing July 2017 climbed for a third day, adding 0.1 cent to 46.1 cents on the dollar by 12:15 p.m. in Kiev.
Jaresko said that she has spoken with other creditors who agree that a writedown is necessary as the country contends with its second year of recession following a yearlong conflict with pro-Russian rebels in its easternmost regions.
BlackRock Inc., a bondholder that’s not part of the four-member creditor committee, said on Thursday investors shouldn’t exclude a cut in principal unless they want to come back to talks next year.
‘All Options’
“We met with a variety of bondholders who understood that a principal cut was going to be a necessity,” Jaresko said, referring to meetings with the nation’s 15 largest private creditors held in the U.S. and U.K. in March. “I think there are investors in the top 15 who are thinking along the same lines as BlackRock.”
The government obtained power from parliament this week to impose a moratorium on debt payments. The authority was meant for the country to “have all options on the table” during negotiations, Jaresko said.
Any decision to halt debt payments would need to be signed off by the IMF and the board members as well as the Ukrainian government, she said. “For us, frankly speaking, it depends on our financial situation and on many other things.”
Ukraine hasn’t threatened creditors with a moratorium, Jaresko said on Bloomberg Television on Friday.
The negotiations are further complicated by a Eurobond that Russia bought from the regime of former President Viktor Yanukovych before he was overthrown in February 2014. Russia has refused to come to the table to renegotiate the $3 billion note that matures in December and has a $75 million coupon payment due on June 20. Ukraine has still not heard back from “three custodians” of the debt in Russia, Jaresko told Bloomberg TV.
Tone Softens
The tone of communication between the parties softened this week as the creditor group disclosed the names of three other members following criticism from Ukraine. Templeton, BTG Pactual Europe LLP, TCW Investment Management Co. and T. Rowe Price Associates Inc. called on Monday for discussions to “commence immediately.”
“Now that the names of the creditor group have been revealed that means that we’ve overcome a hurdle and talks can begin properly,” Jaresko said on Thursday. “The advisers have been talking on a consistent everyday level so it’s not like there has been some gap in communication. The talks have gone much more slowly than I expected.”
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