bne IntelliNews -

The Ukrainian parliament on September 17 approved a crucial bill enacting a restructuring agreement worth billions of dollars with private sector creditors. But the country's prime minister and finance minister said this may not be the last such renegotiation of Ukraine's debts.

Despite concerns that the bill could be rejected, the 450-seat Rada assembly in Kyiv voted with a large majority of 309 in favour of the restructuring deal reached in August on some $18bn of commercial debt largely run up by the state under the ousted government of ex-president Viktor Yanukovych.

"The Ukrainian parliament has demonstrated that it is a reliable partner of Ukraine's government," parliamentary speaker Vladimir Groisman, an ally of President Petro Poroshenko said after the resulot was announced.

But during addresses in the run-up to voting, top officials held out the option to parliament of a later re-restructuring of Ukraine's debts, if the debt burden were to grow to harsh.

"This is probably not the last restructuring," Prime Minister Arseny Yatsenyuk told parliament. "But I know for sure that if this restructuring is not carried out, then Ukraine's future, its financial system are not only under threat - there would be financial collapse, which we have no right to allow."

Finance Minister Natalie Jaresko also echoed the theme of a possible later re-restructuring in her comments to the house. "If the country gets in a worse situation, if the aggression in the east, for example, deteriorated, Ukraine will always have the chance, as any debtor has, to restructure its debts again. You see what happened to Greece recently: this can be done not once, not twice," Jaresko said, while still urging the house to accept the deal.

Analysts also said the approved deal bodes well for the country's development. "Restructuring has passed ... The main thing is we have shown ourselves to be reliable international partners who don't say one thing one day and the next day to the opposite," Olesiy Andriychenko, an analyst at brokerage Art Capital, posted on Facebook, adding that "we have opened the doors for future investment".

On the downside, however, Andriychenko wrote that, "the terms of restructuring are very weak and I am sure that in the future Ukraine will find more demanding negotiators to hold talks with the Wolves of Wall Street".

Hard talks

In a research note, Art Capital outlined the full extent of the concessions Ukraine had made in talks with creditors. "The final terms ended up in favor of the latter [bondholders]. The write down percentage ended up 20% instead of 40% Ukraine requested. Coupon percentage grew by 50 bp instead of falling to allow Ukraine breathing space as the market expected. Maturity extension was only 4 years instead of 7-10 years many expected."

In a blog on September 17, former finance minister Ihor Mityukov explained the reason for Ukraine's inability to get more concessions from creditors, despite international pressure applied by international broadsheets and Western politicians on the creditor's chief representative entity Franklin Templeton.

"In 4 or 5 of the 14 papers included in the restructuring package, Frankin Templeton holds not just a blocking share of 25% but over 75% and thus can block any decision," wrote Mityukov, who restructed Ukraine's debt after the financial crisis of 1998. "And in the other papers, except those held by Russia, Franklin Templeton held over 25%. This means that everything depended on this one investor. I don't know of a single restructuring involving Franklin Templeton that even resulted in a haircut. Purely the fact that the government managed to negotiate a haircut is an important decision."

A further factor working against Ukraine during the restructuring talks is the massive uncertainty over the future trajectory of its economy, as a result of the separatist conflict in the eastern Donbas region, says Makar Pasenyuk, director of the ICU brokerage in Kyiv. ICU was founded and until recently run by the head of the National Bank of Ukraine (NBU), Valeriya Gontareva.

"Firstly, no one knows how long the war will continue and how quickly if at all, trade relations with Russia will be restored. ... Secondly, Ukraine had to meet IMF conditions [in debt restructuring] connected to IMF forecasts for GDP, but no one, including the IMF, can say with confidence how the situation in the economy will develop," Pasenyuk wrote in a research note. "This meant that there was a significant subjective factor in the opening stages of the talks."

History repeats

In fact, if Ukraine were to restructure again at a later date it would be par for the course for sovereign debt restructuring, according to a research paper published by the International Monetary Fund in 2013. The Fund found that most countries restructuring debts were forced at a later date to conduct a second restructuring.

"A review of the recent experience suggests that unsustainable debt situations often fester before they are resolved and, when restructurings do occur, they do not always restore sustainability and market access in a durable manner, leading to repeated restructurings," the paper found in 2013, adding that "in hindsight, the Fund's assessments of debt sustainability and market access may sometimes have been too sanguine."