Tuesday, May 12, 2015

Creditors hold hard line on Ukraine's new debt plan

By Karin Strohecker

May 12 (Reuters) - A group of Ukraine's biggest creditors said on Thursday it had submitted new detailed proposals to restructure Kiev's debt but the plan still rejects any writedown in the face value of the bonds.
Ukraine has set itself a June deadline to get a deal in place with creditors, with around $23 billion worth of debt earmarked for restructuring. But progress in the talks has been slow, with little movement in recent weeks from either the creditors or the government.
The restructuring aims to save Ukraine around $15 billion over a four-year period as private bondholders' contribution towards an IMF-backed economic turnaround package, put in place after war and political upheaval that have sent Ukraine's currency and economy into a tailspin.
Ukraine has stressed that the restructuring must involve a "haircut" or writedown in the bonds' principal and coupons.
The creditors have steadfastly opposed haircuts, and according to a source familiar with the talks, the new detailed plan was in line with earlier statements and did not foresee a principal haircut.
The ad-hoc creditor committee, which includes investment firm Franklin Templeton and represents investors holding bonds worth about $10 billion, did not give details of the plan it had put forward but said it was looking forward to discussing it formally with the Ukrainian government.

"The committee has now delivered a detailed restructuring proposal based upon IMF assumptions," the ad-hoc committee said in an emailed statement, adding it had not seen "substantive engagement" by Kiev or its advisers on its initial plans delivered four weeks ago.
"This is a compromise that balances the stated debt reduction interests of Ukraine and one of the investors' objectives of avoiding a principal reduction."
The bondholders issued their statement as an IMF mission was due to arrive in Kiev to review progress with conditions of its $17.5 billion four-year loan.
Ukraine expects a second tranche of about $2.5 billion to be disbursed under the programme after the review.
The committee said it was willing to support a "prudent" debt restructuring, though it did not give further details of what the compromise would entail.
The finance ministry in Kiev declined to comment.
Analysts say that with the two sides' positions so far apart, it is highly unlikely a deal can be reached by June.
"What Ukraine really needs is quite a big haircut. The problem is why would creditors agree to a big haircut when there is so much uncertainty involved?" said Gabriel Sterne, head of global macro research at Oxford Economics.
"The incentives for brinkmanship are quite high, so they will struggle to reach an agreement in time."
Ukraine's sovereign dollar bonds, which are trading roughly 45-48 cents in the dollar, weakened further throughout the day.
The November 2022 issue slipped by more than 1 cent while the July 2017 bond traded 0.4 cent lower. (Additional reporting by Natalia Zinets; Editing by Jeremy Gaunt/Ruth Pitchford).


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