All creditors bar Moscow back Ukraine debt restructuring

(Business New Europe – bne.eu – bne IntelliNews – October 15, 2015)

Private creditors have voted in favour of Ukraine’s $18bn debt restructuring deal, while Russia – which holds a $3bn bond due in December – refused to vote, Kyiv’s Finance Ministry said in a statement published on October 15.

“The ministry is pleased to announce that all sovereign and sovereign guaranteed bonds, with the exception of the December $3bn bond, passed an extraordinary resolution approving the proposed restructuring,” the statement reads.

The vote on October 14 finalises the country’s seven-month marathon aiming to secure an $18bn debt restructuring deal with a group of investors represented by US investment firm Franklin Templeton. In late August, Ukraine agreed with its creditors a 20% writedown of the face value of its Eurobonds.

With the restructuring deal, Kyiv meets the conditions of the current bail-out programme agreed with the country’s main creditor, the International Monetary Fund (IMF), in March 2015. At the same time, Russia reiterated that it expected the $3bn debt to be repaid in full.

“Settlement of the exchange offer for the 13 series of bonds which yesterday approved their respective extraordinary resolutions would result in the restructuring of around $15bn of Ukraine’s external debt, achieve a 20% debt reduction for Ukraine (around $3bn) and allow Ukraine to avoid payments of any of the previously scheduled $8.5bn of principal falling due under such bonds during the next four years,” the finance ministry underlined in the statement.

The ‘Russian’ bond dilemma

According to the ministry, an adjourned bondholder meeting will be held in London on October 29 in relation to the Russia-held $3bn Eurobond, issued by former Ukrainian president Viktor Yanukovych’s government in late 2013, “as the quorum was not reached at the initial meeting”.

“At this meeting the holders of this bond – today the only holdouts – will have a final opportunity to join all of Ukraine’s other external bondholders in supporting Ukraine’s debt restructuring,” the ministry added.

According to the ministry, headed by US-born Natalie Jaresko, the final decision on settlement of the entire exchange operation will be taken by the finance ministry “immediately” following the adjourned meeting. “If the decision is taken to proceed, it is anticipated that settlement will occur and new securities will be delivered to bondholders mid November 2015,” the statement reads.

Meanwhile, Ukrainian Prime Minister Arseniy Yatseniuk told journalists on October 15 that “as was expected”, Russia is the only country that did not take part in the vote.”If they think that they are unique, we are ready for a judicial examination of the case with the Russian Federation,” Yatseniuk said.

Moscow’s default plan

Earlier, on October 13, Russian Finance Minister Anton Siluanov said that Moscow would regard Ukrainian’s failure to repay a $3bn Eurobond in December as a sovereign default. According to him, the Russian government is preparing “a particular plan of action” for Ukraine’s possible default.

Siluanov added that if Kyiv refused to pay off its debt, Moscow would turn to international arbitration courts and directly to the IMF.

The minister underlined that the Russian government would present the response plan to President Vladimir Putin, who said on the same day that the IMF should provide an additional $3bn loan to Ukraine in order to ensure the repayment of its debt to Russia.

“You could speak with colleagues; it seems to me it’s easier to add $3bn to Ukraine [loans] so that it could pay [the debt] off … because after changing those rules in favour of one country requests may follow to change those rules for other states as well,” Putin underlined.

On October 10, Russia’s VTB Bank chief Andrei Kostin said that IMF Managing Director Christine Lagarde was supporting Russia’s classification of the debt as “inter-governmental”, while neither Lagarde nor other IMF officials issued a comment on the matter. This statement triggered speculations that the IMF might allow Ukraine to default on the $3bn bond.