Ukraine Debt Talks Risk Stalling as Latest Proposal Unacceptable
Progress between Ukraine and its creditors on a $19 billion restructuring may be losing momentum after the latest proposal from the government was said to be unacceptable to the nation’s bondholders.
Ukraine’s $2.6 billion of 2017 notes fell the most in a month after a person familiar with negotiations said a creditor committee led by Franklin Templeton aims to hold a call to discuss the offer next week, rejecting a request for high-level face-to-face talks in London on Thursday.
Renewed discord threatens a rally that pushed the securities up by the most on record last month on optimism a deal may be imminent. Unless an agreement can be reached this week, Ukraine will probably have to impose a freeze on debt payments before Sept. 23 notes come due, another person familiar with talks said Monday. Ukraine’s Finance Ministry said yesterday that negotiations this week will be “decisive.”
“Talks are moving but there needs to be a trigger to push one of the sides to compromise,” said Vadim Khramov, an economist at Bank of America Merrill Lynch, who expects the two sides will eventually agree to a 20 percent principal reduction. “That trigger might be a moratorium, which is becoming more likely as the deadline nears for the September bond.”
The 2017 note slid 0.6 cent to 57.0 cents on the dollar at 1:46 p.m. in Kiev after a 9.9 cent surge last month.
Holding a high-level direct meeting would be premature with just 48 hours notice given the geographically disperse nature of the committee’s membership, the person said today.
‘What Price?’
Franklin Templeton, Ukraine’s biggest bondholder, is based in San Mateo, California. The other members of the group, which owns about $8.9 billion of Ukraine’s Eurobonds, are BTG Pactual Europe LLP, TCW Investment Management Co. and T. Rowe Price Associates Inc.
A spokesman for Ukraine’s Finance Ministry wasn’t able to immediately comment when contacted by phone.
A two-month standoff was ended in early July with the first direct meetings between the Finance Ministry and the creditor committee. Even though bondholders were said last week to have included a principal writedown in their proposals for the first time, there may still be a considerable gap between both parties.
The creditors offered a so-called haircut of 5 percent to face value, conditional on economic performance, a person familiar with the details said on July 30, while Ukraine was said to be looking for a 40 percent writedown in June.
“The problem is not about a quick or a slow deal; there will be a deal, eventually, but the whole question is to know at what price,” said Regis Chatellier, a London-based strategist at Societe Generale SA. “I think a 30 percent haircut is a likely scenario, and the longer it takes for the deal to happen, the more the market will start pricing the scenario of tough restructuring conditions.”
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