UKRAIN’15 holders want preferential restructuring, Bloomberg reports

A group of holders of Ukraine’s shortest sovereign bonds (UKRAIN), maturing on Sept. 23 and Oct. 13, 2015, stated that the debt restructuring operation is biased against them, Bloomberg reported on Sept. 9. They issued a letter asking the other 2015 bond holders to join them in their attempt to block the restructuring deal, a move that they haven’t yet had enough votes for. The holders of the shortest notes are seeking a fairer distribution of the new notes, so that the effective maturity extension for their paper would be about four years, Bloomberg reported.

Recall, the Ukrainian government reached a deal with an ad hoc creditors committee in late August, based on which all the sovereign bonds (maturing 2015 to 2023) will be exchanged into an equal set of nine new bonds, to mature between 2019 and 2026.

The amount outstanding of the two shortest Eurobonds is USD 1.17 bln, or 6.5% of the total sovereign Eurobonds that are going to be restructured (USD 18.03 bln).

Alexander Paraschiy: The exchange of notes with different maturities into a new set of identical bonds is indeed discriminative against the holders of the shortest bonds. It was a big surprise that the holders of shorter and longer notes would receive the same new paper. At the same time, nobody prevented the holders of the shorter notes from participating in the ad hoc committee, which agreed to the restructuring conditions for all bondholders. Now it’s too late for the Finance Ministry to change the structure of the deal at the request of owners of less than 5% of total debt. Earlier, the Ukrainian government stated that there won’t be any exceptions for the Russian owners of  a USD 3 bln bond. Needless to say, the no-exception rule would apply to all other bondholders.

There is a risk that the new group will be able to collect enough votes to block the restructuring vote on the 2015 notes (the ad hoc committee members are unlikely to have a majority in these notes). But it’s very unlikely to help them get any better treatment.

All this illustrates that Ukraine’s debt restructuring is far from being concluded as there are a lot of things to be done. The most critical and uncertain things, in our view, are to approve the necessary legal changes in parliament to enable the issuance of the GDP warrants, as well as to convince the Russians to agree on restructuring the USD 3 bln debt.