Ukraine Debt Deal Elusive as California Talks End Without Accord
Ukraine and creditors led by Franklin Templeton said they’re still negotiating a $19 billion debt restructuring, signaling an agreement is proving elusive after two days of talks in San Francisco.
The two sides held “detailed discussions” in the city, situated near Franklin Templeton’s San Mateo headquarters, according to a joint statement received by e-mail. Finance Minister Natalie Jaresko traveled to California this week to convince Ukraine's largest bondholder to agree to reduce its debt burden as the economy languishes amid a resurgence in separatist unrest in its easternmost regions.
“Talks are ongoing,” they said in the two-line statement, without elaborating. The discussions will continue remotely and no direct talks are planned for Friday, a person with knowledge of the negotiations said, asking not to be identified because the details are private.
Failure to reach a deal after Jaresko flew 6,000 miles to meet face-to-face with Franklin Templeton’s bond chief Michael Hasenstab may force Ukraine into default as time runs out to execute any agreement before a $500 million note falls due on Sept. 23. The eastern European nation earlier called the talks this week a “final opportunity” to secure an accord.
The negotiations are taking place against a backdrop of escalating tension in Ukraine as the military said pro-Russian rebels shelled the army more actively than at any time in the past six months and may be planning a fresh offensive amid wrangling over a fraying peace accord. The nation’s economy shrank 14.7 percent in the second quarter and is poised for the worst contraction in Europe, the Middle East and Africa this year.
Writedown Size
The country’s $2.6 billion Eurobond due July 2017 fell for the first time in four days, losing 0.27 cent to 57.46 cents on the dollar by 11:42 a.m. in Kiev. It’s still up 2 cents for the week in anticipation that any agreement may contain favorable terms for bondholders.
In addition to Franklin Templeton, the four-member creditor committee, which owns just under half of Ukraine’s Eurobonds, includes BTG Pactual Europe LLP, TCW Investment Management Co. and T. Rowe Price Associates Inc.
While creditors have agreed to take a writedown on the face value of their holdings, the main dispute has centered on how big the so-called haircut should be.
Last month, the bondholder group was said to have offered a 5 percent reduction to principal, conditional on economic performance -- the first time it agreed to grant Ukraine debt relief. The government will consider imposing smaller losses on the bonds than the 40 percent it was seeking in June, a person familiar with the talks said last week.
Ukraine needs to save $15.3 billion in debt-servicing costs over four years and lower debt to below 71 percent of gross domestic product by 2020 as conditions of the International Monetary Fund’s $17.5 billion loan, the second review of which is due next month. The second tranche, of $1.7 billion, was approved on July 31.
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