Russia won’t attend Ukraine bondholder meeting today, Siluanov says

The Russian side won’t participate in an adjourned meeting of bondholders of USD 3 bln in Eurobonds that the Ukrainian government has scheduled for Oct. 29, Russian Finance Minister Anton Siluanov said on Oct. 28, as reported by Interfax. Siluanov repeated the Russian position that it’s not fair to treat equally private bondholders and the Russian fund, which, he believes, is the official lender.

Recall, the holders of 13 issues of Ukrainian sovereign Eurobonds (at a total par value of USD 15 bln) approved their restructuring at meetings conducted on Oct. 14. The deal involves the exchange of each U.S. dollar in old notes into 80 cents in new, longer notes and 20 cents in GDP warrants. The only holdout at the meetings was the Russian National Welfare Fund, the holder of USD 3 bln notes maturing in late December 2015. Ukraine has scheduled an adjourned meeting for today, 11:30 GMT, to give the Russian side its last chance to approve the deal.

Alexander Paraschiy: By not participating in the meeting, the Russian side is losing its chance to gain value recovery instruments (the GDP warrants) in exchange for its bond, which should be beneficial for all the other bondholders who approved the restructuring. The less GDP warrants are issued, the higher will be future cash flow per one warrant.

The likelihood that Ukraine will repay the “Russian bond” any time soon is very small, in our view. First of all, such a refusal will be supported by the vast majority of Ukraine’s members of parliament and can even improve the poll ratings of the current government. The failure won’t have an immediate effect on Ukraine’s debt ratings (as S&P stated recently) and won’t trigger any cross-defaults. When the Russian government demands the repayment in international courts, Ukraine can settle this claim with Ukraine’s multi-billion claim against Russia to compensate its losses from the occupation of Crimea and Donbas.

The most straightforward way for Russia to make the repayment happen is to ask the IMF to recognize this debt as official. However, even if this happens, the IMF still might allow Ukraine to avoid the repayment, which Russian President Putin is aware of. All in all, we believe the resistance of Russian bondholders looks beneficial for the Ukrainian government.