Ukraine’s creditors are pushing it towards default | beyondbrics

Ukraine’s creditors are pushing it towards default | beyondbrics:



"After a lull of several weeks, an upsurge of fighting near Donetsk is once again threatening Ukraine’s fragile ceasefire. A resumption of the Russian-backed offensive had been widely expected to follow last weekend’s Orthodox Easter celebrations, although Vladimir Putin’s precise intentions remain unclear. Is this the next phase of a slow-motion land grab, with Mariupol possibly the next target, or is it just a means of ratcheting up the pressure in an effort to force new concessions? Either way, Ukraine is going to need a lot more international support to weather the crisis.



Unfortunately, the armed separatists and their Russian sponsors are not the only groups of militant rejectionists working to undermine the Ukrainian authorities. On Wall Street and in the City of London, other kinds of insurgents are digging in for a fight. They can be found among the creditors holding around $20bn of Ukraine’s sovereign debt, including groups of speculators who have started acquiring debt on the cheap in the hope of making large short-term profits. Together they form the backbone of opposition to an IMF-backed restructuring plan intended to save Ukraine $15bn in medium-term debt servicing costs, without which the country is likely to become insolvent.



The deadline for an agreement falls at the end of May and the parties meet in Washington tomorrow when Natalie Jaresko, Ukraine’s finance minister, and the IMF are expected to reiterate to bondholders their view that restructuring is the only way to make Ukraine’s debt position sustainable. Jaresko wants to begin negotiations on a package that would include a mix of payment rescheduling, lower interest rates and a reduction in the face value of Ukraine’s bonds – a haircut, in industry parlance. In response, Ukraine’s largest creditor, Franklin Templeton Investments, has sought to pre-empt talks by rejecting a haircut. In what looks like an attempt to hijack the process, it has formed its own ad hoc committee intended to represent the interests of creditors. Departing from accepted practice, it has refused to reveal the committee’s membership, making it impossible for Ukraine to know who it is dealing with.

A critical first battle involving the proposed rescheduling of debts owed by the State Export-Import Bank of Ukraine (Ukreximbank) suggests a hardening of attitudes among some creditors. The bank’s debts are included in the IMF’s restructuring requirements but a bondholder’s meeting called to discuss a three-month extension on repayments due at the end of April recently ended without agreement. Again, the unwillingness to reschedule payments is in effect a refusal to begin negotiations on full restructuring. Blame is being attributed to hedge funds that have been hoovering up bonds at forty or fifty cents in the dollar. Their goal is to secure windfall profits by forcing repayment in full, even though this would wreck the IMF’s support programme."



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