Ukraine starts restructuring talks on debt maturing 2015-18

Ukraine Finance Minister Natalie Jaresko announced during her March 13 conference call the start of consultations with holders of all state, state-guaranteed and quasi-state debt on the possible parameters of its restructuring. The restructuring discussion may result in the extension of debt maturity, the revision of the coupon rate and the reduction of the face value of debt, according to Jaresko. The financial account savings for Ukraine from the restructuring may reach up to USD 15.3 bln during the IMF program period, which is 2015-2018.

The debt operation will include government Eurobonds (USD 9.7 bln maturing in 2015, 2016 and 2017, including the USD 3.0 bln debt to the Russian State Welfare Fund), the Eurobonds of Ukrainian Infrastructure Fund (USD 1.8 bln, maturing in 2017 and 2018), the Eurobonds of Kyiv city (CITKIE, USD 0.55 bln maturing in 2015 and 2016), as well as the guaranteed debts of state enterprises.

The plan also encompasses the restructuring of the Eurobonds of state Oschadbank (OSCHAD, USD 1.2 bln maturing in 2016 and 2018), Ukreximbank (EXIMUK, USD 1.5 bln maturing in 2015-2018) and Ukrzaliznytisa (RAILUA, USD 0.5 bln maturing in 2018). However, Jaresko noted that these entities will undergo a separate negotiating process to address their particular situations.

The debt operation is scheduled to be finalized by mid-June 2015, as discussed with the IMF, while MinFin is targeting to finish them earlier.

Alexander Paraschiy: Now it’s the debt holders’ turn to express their readiness for concessions on the bond restructuring. We wish the government success, but see little reason for bondholders to agree on any coupon cuts or face value cuts. Tough talks with creditors are also anticipated by the Financial Times, which reported it its March 15 article that holders of about 50% of Ukraine’s Eurobonds formed a block and hired advisers to better protect their position.

It would be a great result for the government if it reaches agreement with all debt holders on the maturity extension of all the 2015-2018 debt for five to eight years. At this stage, even such an outcome does not look guaranteed. The most critical item would be USD 3.0 bln in Russian debt that matures in December 2015 (the biggest repayable this year).

The nearest Eurobond due on the government list is Ukreximbank’s 750 mln note (April 27). The bank has yet to offer something to its bondholders in case it wants to get a waiver for a maturity extension. The government is very unlikely to help in the restructuring of this bond, given the lack of time. That said, each day of delay in the bank’s restructuring request increases the chance that Ukreximbank will have to repay its April bond.

Another concern raised by the talks is whether Ukraine will offer any restructuring on its domestic USD-denominated bonds. Our understanding that these bonds will not be included: the core goal of the initiated restructuring talks is the improvement of Ukraine’s balance of payments, while local bond restructuring won’t help much to achieve this goal.