Ukraine prepares for tough debt talks with new non-payment law

Ukraine’s parliament approved legislation on May 19 granting authority to the national government and Kyiv City Council to avoid servicing certain international debt, earning the support of 256 MPsout of 226 needed. The adopted law allows for the introduction of a moratorium on the government's Eurobonds (UKRAIN) and guaranteed debt (including UKRINF) of a total amount of about USD 19.8 bln, as well as Kyiv city's Eurobonds (USD 0.55 bln), which were also included in the debt operation. The law also introduces a moratorium, according to local legislaton, on confiscation of any property of the debtor that decides to avoid servicing of any of the above-listed debt. The Eurobonds of state banks (EXIUMK, OSCHAD) and the state railway operator (RAILUA) were not included in the list, although they are also subject to the government's debt operation.

Recall, the debt operation was initiated by the Finance Ministry on March 13 to reach the three goals of liqudity (via prolongation of debt matuing in 2015-2018), debt sustainability (via a principal haircut) and payment capacity (via interest payments reduction). The deadline for the debt operation was set at mid-June.

Commenting on the law’s adoption, the Finance Ministry stated that "it may have to suspend payments of state and state-guaranteed debt to international commercial creditors", i.e. if they won't be cooperative. It revealed its hopes, once more, that "a good faith collaborative solution can be found with the creditors and appropriate restructuring terms can be agreed upon rapidly".

Alexander Paraschiy: By gaining the right to a moratorium, the government wants to state clearly to its creditors that a successful debt operation is of its highest priority, and it is ready for a"plan B" in case the debt holders won't be cooperative enough. Clearly, neither MinFin nor the creditors are interested in a situation in which the governemnt will use its newly gained right. At the same time, the government seems to be eager to demontrate that creditors will lose much more than Ukraine will, in such an event.

After MinFin's public criticism last week of the creditors committee being not constructive enough, the committee made a consession by dislosing its membership. From the government's view, the parliament’s move should make the creditors even more cooperative and address its concerns about a lack of “responsiveness” and “good faith”. Hopefully, after the two months of "non-constructive communications though the media,” as alleged by MinFin, the parties will start engaging in more direct negotiations. Clearly, Ukraine wants these talks to finish in bigger consessions from the creditors committee.

Источник: Конкорд Капитал