You're reading: Crunch time near in talks to restructure Ukraine’s debts

Ukraine’s most pressing challenge in coming weeks is to restructure its sovereign debt, freeing up $15.3 billion over the next four years as part of an overall $40 billion financing package that includes a $17.5 billion International Monetary Fund loan.

As Ukraine’s top Western creditor, the IMF is pressing Kyiv to wrap up the debt restructuring talks before its next board meeting in June, when a decision will be reached on whether to disburse a second tranche from its bailout package. But some insiders point to September as a final deadline. Two sovereign eurobonds come due this year, the earliest being its $500 million note on Sept. 23.

A $4.9 billion International Monetary Fund disbursement partially caused a monthly increase in public debt in March. A monthly 18.4 percent appreciation of the official hryvnia exchange rate in March was also behind the spike. The Finance Ministry didn’t hold primary Treasury auctions last month due to the state budget running a cash surplus based on provisional data, according to Kyiv-based Dragon Capital investment bank.

Earlier this month, Ukraine rejected a proposal from a five-member creditor group that holds more than half of its international sovereign bonds, saying it didn’t go far enough in meeting IMF targets because it only involved a maturity extension, Bloomberg reported on April 24.
Apart from saving $15.3 billion, the IMF has set targets of bringing the ratio of public and publicly guaranteed debt-to-gross domestic product to below 71 percent by 2020. The third is to keep the state budget’s gross financing needs at an average of 10 percent of gross domestic product in the 2019-2025 period, according to Bloomberg.

Ukraine got some breathing room this week when bondholders of state-owned Import-Export Bank of Ukraine voted to extend the maturity of its 2015 bond for three months – they were to mature on April 27. Concorde Capital, in a note to investors on April 29, said the bank now is seeking approval on restructuring its $750 million notes under the following conditions: 50 percent of outstanding amount will be repaid by April 27, 2019, and the rest in six equal semi-annual installments between October 2019 and April 2022; the coupon rate on the bond will be raised to 9.625 percent from 8.375 percent.

Restructuring will most likely involve a combination of maturity extensions, reduction on principal and cutting or raising coupons. Ukraine is reportedly negotiating on a bond-by-bond basis.
Eurobonds of state-owned enterprises Ukreximbank, Oschadbank and railway monopoly Ukrzaliznytsia are treated differently because they don’t have state guarantees. The status of a $3 billion bond sold to Russia, considered a holdout in the eurobond talks, is also in question.