In Digest, Ukraine

Two reports enclosed: ‘Ukraine to ask creditors, including Russia, for debt haircut’, by Reuters, and ‘Ukraine creditors form bloc to negotiate bond restructuring ‘, in Financial Times.
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Ukraine to ask creditors, including Russia, for debt haircut

By Reuters, in The Moscow Times, Mar. 15 2015

Ukraine hryvnia currency, image by Denis Abramov, Vedomosti

Ukraine hryvnia currency, image by Denis Abramov, Vedomosti

KIEV — Ukraine’s external debt restructuring will involve principal write downs as well as maturity extensions and coupon reductions, Finance Minister Natalia Yaresko told a conference call with creditors and media on Friday [March 13].

Ukraine is seeking to plug a $15 billion-plus funding gap by restructuring debt held by investors including Franklin Templeton, PIMCO and BlackRock. Until now it has not been clear if creditors would be asked to accept a write down, or haircut, on their initial investments.

Ukrainian finance minister Natalie Jaresko, right, with Valeriya Hontaryeva, chairman of National Bank of Ukraine, photo by AFP

Ukrainian finance minister Natalie Jaresko, right, with Valeriya Hontaryeva, chairman of National Bank of Ukraine, photo by AFP

The debt deal will “probably involve a combination of maturity extensions, coupon reductions and principle reductions. The proportion of each of these elements will be discussed with creditors,” Yaresko said

She said the external debt of some Ukrainian state-owned firms including Oschadbank and Ukreximbank, whose $750 million bond matures on April 27, 2015, will be included in the restructuring, as will eurobonds issued by the city of Kiev.

Three bond issues of Ukrainian infrastructure fund Fininpro amounting to a total of $1.8 billion maturing in 2017 and 2018 will also be part of the restructuring.

Questions remain over whether Russia, which holds $3 billion of Ukraine bonds maturing in December, will participate in the restructuring, but Yaresko reiterated that Ukraine would treat all of its creditors alike.

One creditor whose fund is invested in Ukraine said the negotiations would be difficult. “I don’t know what the Russian government will say about getting a haircut. Without their agreement on the $3 billion bonds, can Ukrainians do the restructuring?,” he said by telephone.

The Finance Ministry hopes to conclude the talks by June, Yaresko said.

Dollar bonds fell across the curve with the 2017 issue down 1.3 cents in the dollar to 44.2 cents and the 2022 issue losing 1.5 cents according to Tradeweb data. The Ukreximbank bond fell 1.8 cents in the dollar but is still trading at 65 cents or significantly higher than its sovereign counterparts.

The first sovereign debt due for repayment is a five-year $500 million bond maturing on Sept. 23.

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Ukraine creditors form bloc to negotiate bond restructuring

By Robin Wigglesworth, in Financial Times, March 15, 2015

Ukraine’s biggest creditor has formed a bloc and hired advisers to prepare for tough talks with Kiev, after the stricken country set out proposals last week to restructure its $17bn international debt.

According to an insider, Blackstone’s advisory arm has been hired to advise the group, which controls about 50 per cent of the country’s international bonds and therefore has the power to make or break the restructuring.

More on this story: Ukraine warns on debt haircuts, Financial Times, March 13, 2015

The bondholder bloc is led by asset manager Franklin Templeton, which is by some distance Ukraine’s single biggest creditor having snapped up about $7bn of Kiev’s debts, according to another insider, most of it before the country’s revolution and subsequent crisis.

Blackstone represented Greece’s creditors in 2012, and will once again square up to Lazard, the investment bank that advised Athens and now acts for Ukraine’s government.

The restructuring is part of a new $40bn rescue of Kiev, led by the International Monetary Fund. A previous $17bn bailout programme unravelled after Russia annexed the Crimea and fomented a separatist civil war in eastern Ukraine, ravaging the economy.

Finance minister Natalie Jaresko last week held a conference call with creditors setting out the government’s position. She said Kiev was looking for about $15bn of debt relief and warned that this could include principal reductions on the face value of its bonds, in addition to lower interest payments and extended repayment schedules.

Negotiations are likely to be combative. A person close to the talks said the bondholder group was unwilling to accept outright haircuts and believed the targeted debt relief was too high.

Russia will be another big hurdle. The country is owed $3bn by Ukraine through a bond issued as part of a bailout for the pro-Moscow government that was ousted last year. Russia has indicated that it is unwilling to restructure the debt.

Ms Jaresko stressed in last week’s conference call that there would be no special treatment for any creditors, including Russia. “We invite the holders of the Russian bonds as well as all of our other eurobonds to participate in this process on the basis of transparency, good faith and inter-creditor equity,” she said. In depth

Russia could choose to hold out and refuse to restructure its bond. That would force Ukraine either to seek a deeper haircut on the other creditors to repay Moscow in full or risk protracted litigation at the same time as it tries to restore and reform its war-battered economy.

The bondholder bloc has already started to explore options in case the Russian government proves unwilling to restructure its debts. The IMF highlighted this as a big risk to the success of its new programme.

“Creditors may balk at the terms being offered in the debt operation and holdouts may try to free ride,” an IMF report said. “The negotiations may be protracted, particularly as some creditors have large positions in specific bond issues.”

The restructuring mandate is a fillip to Blackstone Advisory Partners, which is being spun out of the US investment firm alongside several other advisory arms and merged into PJT Partners. It will be listed in New York soon. Weil Gotshal is the bondholders’ law firm, while White & Case represents Ukraine.

Natalie Jaresko: an uncompromising mission

As tough Ukraine debt restructuring talks kicked off this weekend, creditors stretching from Franklin Templeton’s headquarters in California to Moscow are set to square off with Kiev’s atypical finance minister who is on an uncompromising mission to fix the country’s economy and finances, writes Roman Olearchyk in Kiev.

Natalie Jaresko, a Chicago-born former US state department official and investment fund manager with Ukrainian heritage, was one of a handful of foreigners brought into Kiev’s government in December. The technocrat appointments by war-torn and recession-battered Ukraine were intended to jump-start reforms, tackle widespread corruption and avert default.

The highest-level appointee, the 49-year-old graduate of Harvard University’s Kennedy School of Government, has introduced unpopular austerity measures, held bailout talks with the International Monetary Fund and begun negotiations with creditors to fill a $15bn financing gap.

Formerly an economic section chief at the US embassy in Kiev, Ms Jaresko has spent much of the past 20 years in Ukraine. But she stands out from the country’s former finance ministers.

Most recently head of Horizon Capital, a private equity firm that invested in mid-cap Ukrainian companies, she comes to government with an inside view of the ailing economy and what needs to be done to mend it. Ms Jaresko was granted Ukrainian citizenship on accepting the finance minister’s post, although it is unclear whether she has relinquished her US citizenship. She has one year to do so under Ukrainian law.

A native command of English and inside understanding of global markets will help her negotiate with international creditors.

Initiating talks late on Friday through a webcast, Ms Jaresko said debt operations “will probably involve a combination of maturity extensions, coupon reductions and principle reductions”.

Claiming to be “flexible” on the “proportions”, she insisted that final arrangements needed to ensure Ukraine met macroeconomic targets that were “written in stone”.

Her Russian language skills are not as crisp as her Ukrainian. But it is hard to see how this could make talks over a $3bn bond with a country that Kiev accuses of waging an undeclared war any tougher.


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