Ad hoc debt committee rejects 25% haircut on Kyiv municipal Eurobonds

The ad hoc committee of the holders of Kyiv city’s Eurobonds (CITKIE) rejected a restructuring proposal to exchange 75% of them into new government Eurobonds and 25% into Ukraine GDP warrants, Ukraine’s Finance Ministry reported on Nov. 5. Such terms were approved by the Kyiv City Council on Nov. 5. Among other conditions, the coupon on the new bonds would be 7.75%, or a reduction from 8.0% for Kyiv’s USD 250 mln notes maturing today and 9.375% for USD 300 Eurobonds maturing next year. The new government bonds would mature in 2019 and 2020. As with the restructured government bonds, the accrued interest on the Kyiv notes were offered to be capitalized and added to the principal amount of the new bonds.

Roman Topolyuk: Despite indicating initially that the terms of restructuring Kyiv city’s Eurobonds would be equivalent to the sovereign debt restructuring, the Finance Ministry in fact offered a larger haircut on the municipal public debt of 25%, compared to 20% for sovereigns. We think that the demonstrated strong position of the bondholders’ committee in the negotiations is beneficial for the value of the notes, and we expect the Finance Ministry will offer better terms for restructuring CITKIE. We expect the ultimate restructuring terms for Kyiv city bonds will be the same as those approved by the holders of government Eurobonds. That said, we believe the CITKIE notes should be traded with no spread to sovereigns. We reiterate our positive view on Kyiv Eurobonds.