Ukraine requests more cooperation from bondholders in debt operation

Ukraine's Finance Ministry issued a May 12 statement expressing its concern about the lack of willingness of holders of Ukraine’s international bonds (UKRAIN) to engage in constructive negotiations on the government’s proposed debt operation. The Finance Ministry based its concerns on three spheres: in regards to (1) transparency, MinFin is disappointed that creditors' committee refuses to disclose its membership. In regards to (2) responsiveness, Minister Natalie Jaresko is disappointed with the unwillingness of “one known committee member” to speak with her directly. MinFin is also concerned that “the committee chooses to communicate unconstructively through the media” instead of direct negotiations. In regards to (3) good faith, MinFin is worried that the committee “focuses exclusively on the liquidity aspect” (we read – is only ready to agree on the bonds’ maturity extension) and ignores the debt sustainability objective (we read – won’t agree to any haircut).

MinFin's press release was a response to the committee's proposals on debt restructuring conditions that were sent earlier that day, according to Bloomberg.

Alexander Paraschiy: It's not surprising that bond holders do not see any reasons to agree on a haircut – the MinFin’s “debt sustainability” target looks ill-grounded even to us. Recall, its ultimate goal is to decrease total state debt from the projected 80% of GDP to 71% of GDP in 2020 (or by about USD 12 bln). In our view, it’s too early to forecast the size of Ukraine’s GDP and the level of its debt in 2020. For instance, one of the key variables for this ratio, the UAH/USD rate, is impossible to judge. Secondly, we see little difference between the figures of 80% and 71% of GDP.

The bond holders’ position is clear: time is on their side. Recall, MinFin was committed to finalize talks on the parameters of the debt operation by the first review of the IMF’s EFF program (i.e. by mid-June). While there is a risk that the debt operation will take more time than initially planned, we still believe MinFin and debt holders will find common ground pretty soon. The golden mean, as we see it, might result in a decrease in coupon rates for longer Ukrainian bonds (maturing in 2020-2023) and a maturity extension (maybe with a small decrease in coupon rates) for shorter bonds, maturing in 2015-2018. Such an approach will allow Ukraine to meet fully the first objective of the debt operation (liquidity) and possibly the third one (payment capacity).

Источник: Конкорд Капитал