Ukraine creditors reject 'haircut' despite default threat

Ukraine’s biggest private creditors mounted a firm defence Wednesday of their refusal to accept a debt write-off that could keep the impoverished but strategic ex-Soviet nation from slipping into default.

The group of four US investment giants — owed nearly two-thirds of the $15.3 billion (13.6 billion euros) Kiev is seeking in debt forgiveness — denied being too firm with a Western ally reeling from a war with pro-Russian militias across its eastern industrial heartland.

Kiev argues that investors placed their bets in Ukraine’s Eurobonds when the government was aligned with Russia and must now bear the partial cost of a 2014 popular revolt against the corruption-tainted regime.

Ukraine’s debt restructuring offer would both delay and reduce upcoming interest payments. Kiev also wants to slash the value of the original bonds — a package of measures that could see creditors get back only 40 cents on the dollar.

The proposed “haircut” on the principal has particularly upset the ad-hoc bondholders’ committee.

“A haircut sends the wrong signal to global capital markets when Ukraine can least afford to be shunned,” they wrote in a letter published in the Financial Times.

The group made no mention of their previous demand for Kiev to dip into its depleted central bank reserves to cover the upcoming payments.

That plan was heavily criticised by International Monetary Fund chief Christine Lagarde on Friday and now appears to be off the table.

– ‘Moral obligation’ –

The Financial Times argued last week that the bondholders “have a moral obligation to agree to a restructuring that reduces Ukraine’s debt to sustainable levels.”

The paper’s comments came as the deadlocked talks over how Kiev could save money over four years hurtled toward an early July deadline with both sides sticking to their guns.

Kiev threatens to stop servicing its debts if no agreement is found by the time the IMF decides on whether to stick to its $17.5-billion support programme at a board meeting expected within the next few weeks.

The IMF had initially warned that it would find it hard to issue the next loan payment — $1.7 billion that Ukraine has been waiting for since the end of last year — without a debt restructuring arrangement in place.

But both Lagarde and her deputy have since signalled that the IMF will keep financing Ukraine as long as it pushes ahead with its prescribed austerity and restructuring measures.

The IMF cash makes up the core of a broader $40-billion package that includes individual government assistance as well as the credit payment rescheduling plan.

Ukrainian President Petro Poroshenko and Prime Minister Arseniy Yatsenyuk both huddled with parliamentary leaders to encourage them to on Thursday push through a raft of measures the IMF would like to see in place by the start of July.

“I hope to have a fruitful discussions and see these seven laws debated and passed,” Yatsenyuk said before the talks.

Kiev is expected to make $39-million Eurobond interest payment Wednesday that would keep the restructuring talks alive.

No formal announcement on whether that money was handed over to the creditors was expected before Thursday.


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