Ukraine gets all Eurobonds restructured except for Russia’s USD 3 bln

The bondholders of 13 issues of Ukraine’s state and guaranteed Eurobonds (UKRAIN, UKRINF) of a total value of USD 15 bln voted in favor of their restructuring on Oct. 14, Ukraine’s Finance Ministry reported the next day.

At the same time, the holder of a USD 3 bln Eurobond maturing on Dec. 20, 2015 – the Russian state-run National Welfare Fund – did not sign up for its meeting, which was adjourned to Oct. 29. On that day, the holdouts “will have a final opportunity to join all of Ukraine’s other external bondholders,” MinFin said its press release. Russia’s Deputy Finance Minister replied the same day that they wont participate in the adjourned meeting, reported 1prime.ru news agency. “If they believe they are unique – we are ready for a court battle with Russia,” Ukraine PM Arseniy Yatsenyuk declared at a press briefing.

Earlier, Russian Finance Minister Anton Siluanov stated his government has already accounted for this debt’s repayment “in its budget process for the next and following years”. Russian officials continue to consider the USD 3 bln Eurobond as official, intergovernment debt, meaning a default should trigger a cancelation of the IMF’s financial support program to Ukraine. However, recall that Siluanov stated that the IMF may consider changing its policy to allow for the continuation of its program even if Ukraine doesn’t repay on time its debt to the Russian fund.

Alexander Paraschiy: There is no surprise in the Russian fund’s decision to not attend the bondholder meeting. By attending, the fund would have recognized that it can be treated on par with the other Eurobond holders. Clearly, in its decision to hold off, there are political factors besides a desire to get back the lent money as soon as possible. Otherwise, the Russians would have agreed on the exchange and then would have tried to sell the new bonds at the open market to get back most of the invested amount. As geopolitics are prevailing here (with the goal of putting pressure on the Ukrainian economy), we see little chances that the Russian fund will sign up for the adjourned meeting, although we do not completely rule out such an event.

Instead, the Russian fund will likely go to court, as Yatsenyuk outlined. The timing of such a court battle and its outcome are not clear at the moment. Alternatively, Russia will likely appeal to the IMF board to recognize the USD 3 bln debt as official, and then to prevent it from changing its “lending into arrears” policy to Ukraine’s benefit. In our view, Russia will have a difficult time achieving these two goals.

Theoretically, the Russian fund’s resistance could be beneficial to all the other holders of Ukrainian Eurobonds. In which case, the fund won’t receive the GDP warrants, so the total amount of these warrants (and future payments on them) might be distributed among a smaller pool of investors. In particular, if the Russians hold out, the warrants could have total par value of about USD 3.0 bln (instead of USD 3.6 bln), which is less than the NPV of future payments under these warrants (USD 3.5 bln, based on our estimate and assuming a 10% discount rate – refer to our recent report on this matter). We note, however, that the decline in par value is only hypothetical so far. As of today, we were not able to get confirmation on this from the Ukrainian government.

Источник: Конкорд Капитал