Private creditors believe haircut on Ukraine's bonds is wrong approach

The Ad-hoc Committee of Bondholders to Ukraine insist on their offer to restructure Ukrainian bonds, as they do not understand the necessity of a haircut for part of the debt if the IMF ensures that funds are saved.

"A haircut sends the wrong signal to global capital markets when Ukraine can least afford to be shunned. Ukraine’s problem is one of liquidity, rather than one tied to the level of debt. Our restructuring proposal meets all the IMF criteria and delivers $16 billion of interest and debt maturity relief — not far short of the $17bn in new loans pledged by the IMF," the Financial Times reported, citing a letter written by the committee.

The committee has crafted a proposal giving Ukraine ample time to recover. Bondholders will only benefit once recovery is secured. A key aspect of the plan includes a debt-for-equity swap, where coupons are only paid once gross domestic product reaches a certain level, reads the report.

"The committee has gone out of its way to offer a proposal that is sympathetic, and delivers long-term benefit to all sides. We would like to see other creditors assume similar responsibility. Yet [out] of the country’s $70 billion of debt, just $22 billion is proposed for restructuring. This should be about burden sharing, not burden shifting," reads the letter.

The letter was signed by representatives of T Rowe Price, TCW, Franklin Templeton, BTG Pactual, which are members of the Ad-hoc Committee of Bondholders to Ukraine.

Bloomberg reported, with reference to analysts, that the payment on $3 billion bonds to Russia on June 20 could be the last before Ukraine introduces a moratorium on servicing debts to private creditors.

"Ukraine and IMF do not want to escalate the situation with Russia, and they would pay the coupon before the moratorium is introduced," Nomura Holdings analyst Dmitri Petrov said. He said that the decision to impose the moratorium could be made in early July.

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