Ukraine Creditors Said to Stick to Offer Rejected by Jaresko
The creditor group negotiating with Ukraine over its $19 billion debt restructuring has no plans to revise a proposal that was rejected by the nation’s government, a person familiar with the talks said.
The bondholders oppose writedowns to principal because they’re not necessary to reach the International Monetary Fund’s targets and would therefore lead to restricted capital-markets access for the sovereign and companies, said the person, who asked not to be identified because the talks are private. Even if it did agree to a writedown, other creditors wouldn’t accept it, they said.
Ukraine’s Eurobonds fell the most in almost three months this week as a verbal battle between the government and creditors escalated. Finance Minister Natalie Jaresko said Wednesday that the country will stop servicing its debt if no progress is made on talks. The bondholder committee, led by Franklin Templeton, said yesterday it’s “deeply concerned” by Jaresko’s stance.
A two-month impasse in negotiations is hardening as coupon payments come due this month and a $500 million note matures in September. Jaresko has repeatedly said that any restructuring agreement must include a so-called haircut to the face value of bonds while creditors have insisted that is not necessary to fulfill three IMF-mandated targets.
Ukraine’s bonds extended gains, with the nation’s $500 million of notes maturing on Sept. 23 adding 1.20 cents to 52.03 cents on the dollar at 7:32 p.m. in Kiev. Its July 2017 bonds climbed 1.19 cents to 48.09 cents.
Debt Swap
“This strategy of holding to the proposal will make Ukraine soften its position and re-negotiate more acceptable terms for both sides,” Oksana Reinhardt, an analyst at GMP Securities Europe LLP in London, said by e-mail. “The sides will eventually meet somewhere in the middle, though the current unwillingness of both sides to compromise might drag the debt restructuring process into September.”
The creditor proposal includes a debt-for-equity swap whereby coupons are only paid if gross domestic product reaches a certain level, the person said.
A spokesman for the creditor group declined to comment on the details, but said the committee is “ready and willing to start talks any time.”
The proposal seeks to extend maturities of Ukrainian bonds by as much as 10 years, while lowering the nation’s interest and principal burden in the first four years, a person with knowledge of the committee’s thinking said on May 29. The offer achieves a reduction of about $500 million on interest payments.
IMF Forecasts
Jaresko has rejected the creditor group’s offer on the grounds that it assumes Ukraine can make payments out of the nation’s reserves, something it says is illegal.
The proposal would leave Ukraine’s reserves at the same level as they would be under the IMF’s forecasts, the person said today.
The creditors haven’t been given the IMF’s latest economic forecasts from Ukraine even though they have requested them from the Finance Ministry, the person said today. The IMF increased its forecast last week for how much Ukraine’s economy will shrink this year to 9 percent, but is yet to update its debt-to-GDP estimates, one of the baseline assumptions on which its targets are based.
The three IMF goals are savings of $15.3 billion over four years, reducing the ratio of debt to less than 71 percent of GDP by 2020 and bringing the budget’s gross financing needs to an average of 10 percent of GDP from 2019 to 2025.
Russia Contact
The maturity extensions differ from bond to bond and the plan will yield savings for Ukraine of $15.8 billion in the first four years, according to the person on May 29. In the latter years, Ukraine would need to pay higher coupons and gradually repay principal.
“It seems now that bondholders are still not willing to accept a haircut,” Fyodor Bagnenko, a Kiev-based trader at Dragon Capital, said by e-mail. “Many people think the finance ministry’s negotiating position is not so strong and are betting on a more positive outcome in the talks for bondholders.”
There has been no contact between the creditor group and Russia over the $3 billion Eurobond the nation 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 note that matures in December and has said it will take Ukraine to court if a $75 million June coupon payment is missed.
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