Ukraine has rejected a debt restructuring deal put forward by international creditors as the two sides struggle to break through a negotiation stalemate.
A group of investors representing just under $9bn of Ukrainian bonds, including Franklin Templeton, Ukraine’s largest creditor, this month suggested a plan to reduce the country’s debt burden by $15.8bn over the next four years — a figure that exceeds the $15.3bn targeted by the government.
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An insider said the restructuring would involve bundling Ukraine’s outstanding international debt into one or two bonds and extending the repayment date by up to 10 years.
Interest payments due over the next four years worth $500m would be halted and the bonds would then be amortised so that repayment was staggered.
Kiev hopes to restructure about $23bn of debt as part of an International Monetary Fund-backed bailout due for review in mid-June.
However, a formal call on Friday afternoon to discuss the deal failed to end in agreement.
A person with knowledge of the talks said the creditor proposal was unacceptable because it involved slashing the country’s reserves, using central bank funds to pay out $4bn to investors in 2019, another $4bn in 2020 and increasing overall interest payments.
Relations between Ukraine and its creditors have soured as each side accused the other of obfuscation.
Kiev last week increased the pressure by passing a law to allow the government to call a moratorium on sovereign bond payments.
The stand-off hinges on a disagreement over whether investors must accept a writedown on their investment as official figures show the war-torn country is suffering a deep economic slump.
Natalie Jaresko, finance minister, has insisted that investors in Ukraine’s debt must be willing to accept a reduction on the principal they are owed if the country’s debt is to become sustainable.
She reiterated on Friday that debt restructuring would need to include maturity extensions, coupon reduction and principal reduction.
Finance ministers from the G7 group of leading economies meeting in Dresden on Friday backed efforts to support Ukraine in talks to restructure its debt.
Wolfgang Schäuble, German finance minister, said: “We agreed we must try to support the negotiation of the restructuring of Ukraine’s debt, which must be brought to a successful conclusion.”
Without a deal in place Ukraine risks losing the next payment from an International Monetary Fund $17.5bn bailout, expected in the next two weeks.
Fund rules say governments must have at least one year of financing in place to receive disbursements.
David Lipton, IMF first deputy managing director, said last month it was vital that Ukraine and its creditors reached a deal before the June review. The fund said on Thursday that its position had not changed.
Ukraine has not defaulted on any of the 29 bonds and loans the government has included in its restructuring programme.
State-run Ukreximbank completed a deal with its bondholders last mon th to extend maturities on $1.5bn of debt.
However, not all creditors have entered negotiations. This includes Russia, which holds a $3bn bond due for repayment in December.
William Jackson, senior economist at consultants Capital Economics, said Ukraine appeared to have sufficient funds to meet small debt interest payments due over the next few months, thanks in part to the issuance this week of a five year, $1bn bond backed by the US Agency for International Development.
The country’s next significant payment of debt is in late September when a $500m bond matures.
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