Ukraine threatens a debt moratorium if deal not reached by Aug. 11

Ukraine’s Finance Ministry released a strong statement on Aug. 5 giving Eurobond holders a last chance to “prepare a revised and improved proposal” on debt restructuring. “In the spirit of good faith”, MinFin has agreed to postpone a meeting with the ad-hoc creditor’s committee to August 10 or 11 from August 6. Failure to reach an agreement early next week “would force Ukraine to implement alternative options for financing its IMF-supported program”, MinFin stated. Obviously, this option is the introduction of a moratorium on servicing any government Eurobond.

Recall that on May 19 the Ukrainian parliament granted a right to the Cabinetto choose to abstain from any payments on Eurobonds until a new agreement with bond holders is reached. The IMF officials stated several times that the Fund will be able to continue cooperation with Ukraine even if the nation temporarily defaults to international private lenders.

Alexander Paraschiy: It is absolutely no surprise that in the current time constraints (50 days are left until maturity of Ukraine’s nearest Eurobond) the statements of MinFin are becoming increasingly strong. That supports our view that the likelihood of a debt moratorium is increasing. Again, we do not expect the creditors proposal will significantly improve. In particular, it is difficult to believe that bond holders would accept a much greater haircut on Ukraine’s debt, as compared to what they already offered (5%, based on the latest information, vs. MinFin’s vision of a 40% debt reduction).