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UPDATE 2-Ukraine sees end of next week as "absolute" deadline for debt deal - source
(Adds second source; changes slug to conform with package)
By Sujata Rao
(Reuters) - Ukraine sees the end of next week as the "absolute last deadline" for a debt restructuring deal with its bondholders, to avoid imposing a moratorium on payments, a source familiar with the situation said on Friday.
The source also said that a new restructuring proposal submitted by a group of Ukraine's biggest creditors does not represent a better deal for Kiev than a previous plan because of all the conditions attached to it.
"The end of next week is the absolute last deadline to agree on terms of a deal in line with the IMF program targets if a moratorium on the September 2015 payment and other bond payments is to be avoided," the source said, referring to terms contained in a bailout agreed for Ukraine in March and led by the International Monetary Fund.
Ukraine may see the end of the week as a cutoff, but a second source close to the process, also speaking on condition of anonymity, said there was no meaningful deadline next week.
Kiev has threatened to halt payments if creditors fail to agree a restructuring deal and insists a writedown of the principal is essential.
A $500 million bond matures on September 23.
Talks have been going on for four months, with creditors adamant their proposals allow Kiev to meet bailout terms without inflicting a haircut on them. Reuters reported on Thursday that the latest proposals from creditors envisaged a 5 percent haircut, in what seemed like a softening in their stance .
The first source said the creditors' committee's new plan contains the possibility of two sets of writedowns proposed at around 5 percent each, but these could be eliminated if certain conditions are met.
"It's not really a better deal than what the Ukraine government has seen so far. They don't feel this is going very far, it's not as far as one might think because a lot of conditionality is attached to the proposals," the source said.
"If the economic situation picks up according to different metrics, the haircut is reduced to 5 percent or to zero."
Ukraine said last week it had sent fresh proposals to the creditors, but it is unclear if these amend its original desire for a 40 percent writedown. The source said the 40 percent proposal should form the basis for negotiations but that Kiev was keen to reach a "collaborative number".
While it seemed some progress was made, there was still some way to go for both sides to come to an agreement, said Jakob Christensen, senior economist at Exotix.
"We are seeing progress in negotiations ...(a) principal haircut is now no longer a taboo among the creditor group, even if their latest proposal is filled with conditions," he said.
"Time is really running out; apart from agreeing on the general principles (and the distance is still large between the two sides as we know) there are many practical obstacles and potential pitfalls."
The source said Ukraine would not be making the $500 million payment in September.
"The September 2015 is a big payment, and if Ukraine were to make that payment it would take them out of the IMF programme. According to the IMF programme, this payment can't be made," the person said.
Eurobonds have risen steadily over the past weeks on expectations that an agreement will be reached, hitting fresh multi-month highs on Friday.
The 2017 issue rose 1.635 cents to 56.750 cents in the dollar, the 2022 bond gained 2.375 cents to 58.625 cents and the 2023 bond added 3.250 cents to trade at 58.500 cents - all hit their highest level since January .
Ukraine has suggested a meeting next week, with the participation of finance minister Natalie Yaresko and Franklin Templeton's Michael Hasenstab, the person said.
Templeton is believed to hold over a third of outstanding bonds and leads the ad-hoc creditors' committee. (Additional reporting by Karin Strohecker, editing by Larry King)
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