"Decisive" Ukraine debt talks stall as creditors snub Kyiv offer

By bne IntelliNews August 5, 2015

bne IntelliNews -


New proposals on debt restructuring tabled by the Ukrainian government were on August 5 kicked back by private bondholders as "unacceptable", even as Kyiv urged them to meet in London the following day to settle the matter after months of wrangling.

A creditor committee led by Franklin Templeton wants to hold a call to discuss the offer a week later, rejecting the Ukrainian Finance Ministry's request for high-level face-to-face talks in London on August 6, a person familiar with the negotiations told Bloomberg.

On August 4, the ministry sent an updated proposal for restructuring sovereign and government-guaranteed debts to the creditors, without elaborating details but stressing the need to finally resolving the dispute, which is hampering  the extension of further credits to Ukraine.

"Given the legal considerations around timely implementation of the proposal, this week will be decisive for the negotiations," the ministry said in a statement.

Under a $17.5bn bailout package agreed with the International Monetary Fund (IMF) in March, Ukraine must save more than $15bn on earlier credits, many of them taken under former president Viktor Yanukovych, who was ousted in mass protests last year. Denouncing his government as criminal, Ukraine's new pro-Western government says it wants to pay off the debts, but not if this leaves the country's coffers empty.

In late July, anonymous sources revealed that the creditors sent a new proposal to Ukraine's government that included agreeing to a moderate 5% haircut on the principal debt. Kyiv has been insisting on a 40% haircut to no avail since talks began.

After the reported lesser haircut offer, Finance Minister Natalie Jaresko tweeted "an interesting idea" in response to a comment by chief analyst Oleksandr Valchishen of the Kyiv-based ICU consultant company - that the creditors' proposal to cut the debt principal by 5% was undervalued and that Ukraine should seek greater discounts.

Moreover, "writing off 5% of the debt will not fundamentally influence the situation with the public debt with an annual interest rate of 7%" Oleksandr Zholud, senior analyst of the International Centre for Policy Studies, said as quoted by Interfax.

Ukraine this year honoured a number of large servicing payments on its obligations. However, a $500mn payment due on September 23 is regarded as a make-or-break moment for the country's finances, with many observers predicting the government may choose to default on the debts entirely. 

The Ukrainian parliament in May passed a debt moratorium law allowing such a step, although this has also been perceived as a tool to exert pressure on the private creditors in talks. 

Meanwhile, the IMF said in a report published on August 4 that Ukraine should complete its discussions with the creditors on a debt operation by late September 2015, with the aim "to bring its debt firmly" on a sustainable path towards a target of below 71% of GDP by 2020.

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