Restructuring of EXIMUK, OSCHAD could be softer than for state paper

The Ukrainian government adopted a resolution on April 4 that lists key parameters of debt operation that are going to be implemented as a part of deal with the IMF, the Finance Ministry reported the same day. The government is yet to publish this decree that should contain a full list of state obligations that are subject to restructuring attempts. The document clarified that Ukraine is going to restructure only external debt of state, external state guaranteed debt, as well as Eurobonds of state banks, city of Kyiv and Ukrainian Railways.

Based on the MinFin release, cabinet re-iterated the targets listed in the IMF memorandum: (i) saving about USD 15 bln during 2015-2019 (possibly to be achieved via extension of maturity on all the debt due on this period); (ii) bring the state and guaranteed debt to GDP ratio to not higher than 71% by 2020 (possibly to be achieved via debt haircut); and (iii) keep the budget’s gross financing needs at an average of 10% of GDP and not higher than 12% of GDP in 2019–2025 (possibly via haircut and/or interest rate cut).

The Finance Ministry clarified that the debt instruments of state financial institutions Ukreximbank (EXIMUK) and Oschadbank (OSCHAD) will be only restructured to help reach the first target agreed with the IMF.

Alexander Paraschiy: The MinFin statement looks slightly encouraging for bond holders of Ukreximbank and Oschadbank, as it indicates the government‘s restructuring offer for these bonds might only be limited to maturity extension (so a haircut offer is less likely for these notes). For that reason, we believe, the bonds of Ukreximbank and Oschadbank should be traded inside the sovereign yield curve. This also adds some chance that bond holders of Ukreximbank’s USD 750 mln notes maturing on April 27 will agree on a 3-month extension of its maturity to continue talks on new restructuring terms, as offered by the bankon Mar. 27.