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.