Ukraine will take a break until Aug. 10-11 from its tug of war with creditors over the restructuring of some $19 billion in external debt, according to a statement published on Aug. 6 on the Finance Ministry's website.
Describing the upcoming talks in London as the “last negotiation session,” the Finance Ministry indicated that it would be compelled to recur to “alternative financing support mechanisms for the International Monetary Fund program,” meaning it could impose a moratorium on debt servicing next week.
The debt restructuring talks are a key part of a broader international emergency financing scheme worth $40 billion designed to pull Ukraine back from the brink of economic failure.
The noteholders’ committee with whom Finance Minister Natalie Jaresko is negotiating holds approximately $8.9 billion of Ukraine’s sovereign debt. It consists of funds managed or advised by BTG Pactual Europe, Franklin Advisers, TCW Investment Management Company and T. Rowe Price Associates.
“Due to these constraints, it is also the last opportunity to reach a full agreement in advance of the September and October eurobond amortizations and next IMF review now planned for September,” reads the Finance Ministry statement.
A sovereign $500 million eurobond matures on Sept. 23 and a $600 eurobond matures on Oct. 13.
Ukraine’s creditors have offered to write off 5 percent of Ukraine’s debt, according to Reuters, whereas Ukraine is asking for a 40 percent write off and a freeze on interest payments for 4-5 years.
Ukraine external government debt
As a percentage of gross domestic product, Ukraine’s external government debt was more than $40 billion in April, or 35 percent of GDP, $28.1 billion more than in 2008 when it was just 7 percent of the size of Ukraine’s economy.
“According to our calculations, it is realistic to achieve a 25 percent writeoff,” Oleksandr Valchysen, head of research at Investment Capital Ukraine, said. “The creditors’ initiative is testimony that the situation is defrosting – they hinted that they’re ready to listen to arguments and find a mutually beneficial decision regarding Ukraine’s government debt.”
Given that the interest rate that Ukraine is paying on its eurobonds is 7 percent and more, a one-twentieth write off won’t help the overall debt situation, Oleksandr Zholud of the International Center for Policy Studies said.
The setback in the negotiation process still “most likely (will) increase the chances of a moratorium on debt servicing by the Ukrainian government already starting from next week, which could end in a full-fledged default by September,” Kyiv-based Empire State Capital said in an emailed note. “In our view, a full default might be more beneficial and preferable for the Ukrainian government compared with a benign debt reduction that could be won in the negotiations with creditors. However, such a development may also send the country into uncharted territory.”
Kyiv Post editor Mark Rachkevych can be reached at [email protected].
