Germany asks Ukraine to offer better conditions on “Russian debt”

The German Finance Ministry asked Ukraine to propose a new restructuring offer on its USD 3 bln Eurobonds owned by a Russian state fund, Bloomberg reported on Feb. 9, citing its sources in Germany. Both Russian and Ukrainian finance ministries earlier acknowledged that they are trying to agree on a restructuring of this debt via German mediation.

In September 2015, Ukraine offered all the holders of Ukrainian sovereign Eurobonds (worth USD 18 bln) to exchange them for a set of longer bonds and GDP warrants. In October 2015, all the bondholders agreed to this restructuring, except a Russian state fund, which owned USD 3 bln in Ukrainian Eurobonds. Ukraine did not repay “Russian bonds” when they became due (Dec. 20, 2015). The Russian MinFin promised to sue Ukraine, though as of last Friday, it has not initiated a legal claim.

Ukraine insists that it cannot offer any better restructuring conditions to the Russian bondholder, due to the restructuring terms agreed with the other bondholders. Moreover, the restructuring conditions for the holdout bondholder should be worse than for the others. In particular, according to the restructuring terms, the holdouts cannot receive Ukraine’s GDP warrants. Last week, the Ukrainian Finance Minister said that there is still an opportunity to agree on the restructuring without court hearings.

Alexander Paraschiy: A “new restructuring offer” clearly means some “better restructuring conditions” as compared to what Ukraine has already proposed (a write off of 20% of the debt, the repayment of the rest in annual installments between 2019 and 2027, and an increase of coupon to 7.75% from 5.0%). After the IMF declared the USD 3 bln debt an official obligation of Ukraine, the MinFin had more freedom to offer some preferential conditions to the Russians. However, it’s not politically acceptable for the Ukrainian government to offer any better conditions to Russia, which is considered an aggressor-state. Therefore, we can hardly expect any progress on the solution of this debt – a court battle remains our base-case scenario.