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Ukraine and creditors lock horns over debt writedown
[LONDON] A debt restructuring deal for Ukraine seemed far off on Friday, after its finance ministry and creditors accused each other of a lack of engagement in talks and Kiev dismissed the offer from bondholders as unacceptable.
Kiev and a creditors' committee led by Franklin Templeton had earlier held a teleconference aimed at reaching a deal to enable Ukraine to meet targets attached to a US$40 billion bailout package led by the International Monetary Fund.
Ukrainian sovereign bond prices had hit multi-month highs ahead of the talks, after a week of robust rises fueled by hopes that creditors might achieve a debt restructuring deal with a smaller loss than previously expected.
The two sides have been at odds over deal terms, with the committee rejecting Ukraine's insistence that they take a haircut, a reduction in the bonds' face value. Friday's statements suggested little progress had been made.
A group of creditors expressed disappointment that no basis had yet been found for detailed negotiations with Kiev on how to restructure its debt. "The Committee submitted a burden-sharing proposal in early May that would provide approximately US$15.8 billion of liquidity relief to the country and meet the three IMF criteria," the creditor committee said in a statement emailed after the talks. "We are disappointed that we have not yet found the basis for detailed negotiations between principals and continue to believe that it is in the interests of Ukraine for such discussions to commence as quickly as possible." The creditors say their plan can save Ukraine US$15.8 billion, without forcing a haircut on creditors, but the offer is based on raiding central bank reserves for 40 per cent of the debt repayments, a source said on Monday.
After the conference call, the Finance Ministry expressed regret that the creditors' plan remained unchanged. "The Committee's proposal to offload their sovereign claims into the books of the National Bank of Ukraine is unacceptable as it assumes using the National Bank of Ukraine's reserves, in clear violation of Ukrainian law," it said in a statement.
The ministry called on creditors to discuss "appropriate burden sharing" as required under the IMF bailout programme. "The Minister (Natalia Yaresko) expressed a willingness to meet directly with the creditors and encourages the Committee to remove artificial and counterproductive barriers to more constructive dialogue," it said.
Ukraine wants to secure a debt restructuring deal as soon as possible to keep loan disbursals from the IMF on track.
Ukrainian government bonds outperformed their peers as measured by the JPMorgan EMBI Global index on Friday, with a total return of 1.94 per cent. The yields spreads of those bonds vis-a-vis benchmark US Treasuries had already tightened significantly prior to the ministry's statement.
Late on Friday, yield spreads were tighter by 91 basis points to 2,651 basis points. However some of that positive move for Ukrainian credit is attributed to the move higher in US Treasury yields.
Friday's bond price rises had come in part from investors hoping for a deal, said Robert Burgess, chief emerging markets economist at Deutsche Bank. "This is all positive but I'd be surprised if that changed the fiscal arithmetic so dramatically that the objectives of the debt operation were going to change and there was less need for a principal reduction," he said.
Dollar-denominated bonds due in 2017 and 2022 had gained 2.750 cents and 2.875 cents respectively, both venturing above the 50-cents-in-the-dollar threshold for the first time since mid-February .
The 2023 bond stood 2.875 cents higher after earlier hitting the highest level since mid-January. The issue stands almost 20 cents above end-March troughs.
Andre Andrijanovs, a strategist at Exotix, said the bonds were now trading as if only a very small haircut would be imposed and any rise to 60 cents in the dollar would imply no haircut and only a maturity extension. "Not having haircuts sounds like a very optimistic scenario ... Some people think there could be more progress than earlier expected and there are some players who thought maybe they were too short and decided to buy," Andrijanovs added.
Separately, Ukraine's finance ministry requested holders of securities considered for restructuring to disclose their identity by June 11, according to a document seen by Reuters on Friday. The list of bonds includes a US$3 billion Eurobond held by Russia, whose full repayment is due by the end of the year.
Moscow has threatened to take Kiev to court if Ukraine fails to repay its debts to Russia.