Ukraine concludes debt operation, offers no third chance to Russia

Ukraine’s Ministry of Finance announced on Oct. 29 on its website that it has entered into the final stage of restructuring USD 15 bln of its sovereign Eurobonds (UKRAIN). Their holders are going to receive new securities (Eurobonds and GDP warrants in an 80/20 proportion) on Nov. 12, the ministry said. The holders of USD 3 bln in Eurobonds maturing in December have not approved the restructuring offer and, therefore, have lost their right to receive the new securities, the statement said.

Recall, the majority of the holders of 13 Eurobond issues of the Ukrainian government (UKRAIN, UKRINF) approved the restructuring terms at their meeting on Oct. 14. The holders of USD 3.0 bln in notes maturing on Dec. 20 failed to appear at the Oct. 14 meeting, nor at the adjourned meeting on Oct. 29. The only holder of these bonds is the  Russian state-run National Welfare Fund. Russian Finance Minister Anton Siluanov stated on Oct. 28 that the fund won’t participate in the restructuring of Ukrainian debt, as it deserves special treatment as an “official lender.” According to the IMF’s existing “lending into arrears” policy, the fund cannot provide loans to countries that are in default on official debt.

However, such an IMF policy might be amended soon, IMF Communications Director Gerry Rice told a press briefing on Oct. 29. The fund is discussing changes that would allow lending amid the existence of official arrears in certain circumstances, Rice said. This lends credibility to the concerns of Siluanov, reportedly expressed in a meeting with Russian President Putin on Oct. 13, that the IMF is preparing some rule changes to allow Ukraine to avoid the smooth repayment of its USD 3 bln debt to Russia.

Alexander Paraschiy: After the Russian fund did not sign up for the Oct. 29 adjourned meeting of holders of USD 3 bln in Eurobonds, Ukraine had the option to announce another adjourned meeting in 15 days. From yesterday’s statement, it becomes clear that Ukraine’s MinFin did not use this option, thus failing to offer a third chance to the Russian fund. In doing this, MinFin sent a strong signal to the Russian side that it’s being prepared not to repay the Eurobond at all.

Also, by avoiding another adjourned meeting, MinFin demonstrated that such an outcome is optimal for Ukraine. As we wrote before, the exclusion of the Russian fund from Ukraine’s debt restructuring process is beneficial for both the bond holders who approved the deal (who will enjoy more future payments per unit of GDP warrants) and the Ukrainian government (which gains the chance to avoid any payments under the “Russian” Eurobond).