Ukraine, creditors reiterate intent to complete debt operation ASAP

The Ukrainian Finance Ministry published a joint press release with the ad hoc creditors committee on its website on July 10 that stated both sides will continue their talks on sovereign debt restructuring on July 15 in Washington. Finance Minister Natalie Jaresko will participate in the scheduled meeting, according to the document.  “The parties reiterated their common aim to finalize the terms of Ukraine’s debt operation as soon as possible,” the release stated.

This is the second joint release of MinFin and creditors after a similar document published on July 1. The debt operation, aimed at restructuring USD 23 bln of Ukraine’s international state and guaranteed debt and the debt of state enterprises – was initiated in mid-March and was intended for finalizing by mid-June. Thus far, some progress was reached only with the restructuring of USD 2.7 bln in Eurobonds issued by two Ukrainian state-controlled banks.

Alexander Paraschiy: The ability to jointly formulate two official documents of eight sentences, after more than three months spent trading accusations, is a signal that MinFin and the creditors have reached some common ground. At the same time, it’s hard to tell just how solid this ground is. The fact that Jaresko is going to meet with creditors could mean the MinFin working group has reached some breakthrough in talks with creditors, but only the results of the July 15 meeting will indicate just how far the sides are from ultimate agreement.

As MinFin officials assert, reaching a decision on the debt operation is one of the necessary conditions for the IMF to provide the second USD 1.7 bln tranche to the country by the summer’s end. Time is definitely playing against the Ukrainian government, but it still has a trump card in its negotiations with creditors – the ability to introduce a moratorium on sovereign debt repayment. We confirm our expectations for a resolution by the summer’s end, with restructuring of Ukrainian international debt to include all of MinFin’s three planned aims: prolongation, coupon reduction and a haircut, though we expect the latter will be minimal.