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Ukraine Cabinet cancels UAH 229 bln bond restructuring

Ukraine's Cabinet of Ministers decided at its Aug. 9 meeting to cancel the reprofiling of UAH 229 bln in sovereign bonds held by the National Bank of Ukraine (NBU). As its explanation, the Finance Ministry said it did not reach a consolidated agreement with the NBU on the parameters of debt restructuring within a prescribed deadline. The sides will continue negotiations with the goal of providing an updated restructuring plan to the Cabinet, MinFin said.

 

The earlier discussed plan assumed restructuring of UAH 229 bln in local bonds held by the NBU so that they will be repaid evenly between 2025 and 2047 and will have a new coupon rate equal to 12-month trailing inflation plus 1.5pp (compared to the current average coupon rate of 12.9%). Based on that plan, the government would have avoided UAH 10.1 bln in interest payments in 2017, but would bear an extra UAH 4.1 bln in interest payments in 2018.

 

Alexander Paraschiy: Ukraine’s budget revenue is much better than what the government was expecting, so there is no critical need to implement at the moment a debt restructuring that will shift some budget expenditures from 2017 to 2018 and will reduce budget revenue in 2018.

 

Moreover, given that Ukraine’s inflation is much higher than what the NBU was expecting (the regulator’s target was 9.1% in 2017 and 4%-8% in 2018, while so far CPI is 15.9% yoy), it may happen that next year’s interest payments under restructured bonds (linked to inflation) will be too high. All in all, the Cabinet’s decision to postpone the restructuring is a wise move.

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