Ukraine offers “value recovery instrument” to sovereign bondholders

Ukraine’s Finance Ministry sent on June 19 an updated proposal to the committee of bondholders, according to its official release of the same day. It includes a “value recovery instrument for debt holders should the situation significantly and durably improve beyond the projections of the [IMF’s] Extended Funds Facility program”, the ministry stated. The updated proposal, as before, includes a “significant” decrease of the face value of debt, a coupon revision and a maturity extension, while the ministry did not clarify whether these parameters were worsened or improved as compared to earlier offers.

The government is remaining “current on its obligations,” including the June 20 coupon on its Eurobond maturing in December 2015 (due to the Russian State Welfare Fund), according to the ministry. However, it warned that it “will be forced to use its available tools,” clearly referring to its right to introduce its debt repayment moratorium, if a negotiated solution isn’t found “in the weeks to come.” The ministry also published the IMF’s press release in which Managing Director Christine Lagarde stated the importance of Ukraine’s “rapid completion of the debt operation with high participation.” Lagarde also stated that “the Fund will be able to continue to support Ukraine through its lending-into-arrears policy,” even in case the deal with creditors is not reached on time.

Alexander Paraschiy: A sweetener in the form of a “value recovery instrument” is hardly interesting to the holders of Ukrainian bonds given that the government does not look confident at all in the macroeconomic situation being better than the IMF has forecasted. This looks like an attempt to comply with the IMF’s lending-into-arrears policy, according to which the IMF board could continue cooperation with Ukraine even if it has debt arrears to private lenders. To make further cooperation possible in this case, Ukraine has to prove to the IMF that it “is pursuing appropriate policies and is making a good faith effort to reach a collaborative agreement with its creditor”. Therefore, this “carrot” from MinFin increases the chances that it will be able to use a “stick” in form of debt moratorium, if it has to.

MinFin’s decision to pay a USD 75 mln coupon on the “Russian” Eurobond might have been considered by debt holders as a demonstration of the weakness of the government’s negotiating position. However, we believe that the government had no other choice, given that this coupon precedes the Russian government’s decision on next-quarter gas discounts for Ukraine. A positive decision on a discount will save much more money for Ukraine (for its international reserves) as compared to a delayed coupon.

Источник: Конкорд Капитал