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25 лютого 2015 18:33:59
25 лютого 2015 18:33:59
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Conflict clouds Ukraine’s debt distress
When Ukraine’s president pleaded for help at last month’s World Economic Forum he worried aloud that the international community might be suffering from “Ukrainian fatigue”.
He may be right. Of two countries in Europe in the grip of debt distress, Greece is in the spotlight, yet Ukraine could be headed for one of the largest debt restructurings in history.
It has been almost a year since Russia annexed Ukraine’s Crimea Peninsula, sparking a cycle of violence and ceasefires between Kiev and Russian-backed separatists while the country slides towards bankruptcy.
In February, the International Monetary Fund appeared to ride to the rescue, announcing a four-year credit programme worth $40bn.
Precisely how the Washington-based fund arrived at that figure is proving controversial. The IMF will provide $17.5bn, with close to $10bn expected to come from the US, EU and international organisations. That leaves a large chunk poised to come at the expense of private creditors.
In an interview with the Financial Times, Natalia Jaresko, Ukraine’s finance minister, said the country planned to begin talks with foreign investors in March, targeting up to $15bn.
“I’m comfortable and quite confident that our creditors will work with us to find the best possible solution that is in everyone’s interest,” she said.
It is unclear whether this is the sum of debt intended to be pushed back with longer repayment dates, or the haircut planned on the debt. Ukrainian bonds trade far below face value but if a severe haircut is put in place the scale of loss could still come as a surprise.
Analysis by the Institute of International Finance (IIF) found that by the end of last year Ukraine had about $17.25bn in outstanding bonds, plus $1.25bn in loans and $3.3bn in commercial loans guaranteed by the state, making a pool of about $20bn.
Targeting $15bn out of $20bn is a tall order but the odd set-up of Ukraine’s debt is expected to make negotiations even more difficult.
One investor, US asset manager Franklin Templeton, holds close to half of the bonds on the market, giving it the power to block a restructuring deal under majority voting procedures in the terms of bonds it holds sizeable positions in.
A further $1bn was issued under a guarantee from the US and is unlikely to be part of a restructuring deal according to the IIF, while $3bn is held by Russia, the country Ukraine accuses of supporting insurgency in the east.
That bond was the first part of a larger rescue loan agreed between Russian President Vladimir Putin and former pro-Russian Ukrainian President Viktor Yanukovich, a deal stopped when Mr Yanukovich fled the country.
Russia’s bond, which is due to be repaid in December, also contains an odd clause allowing Moscow to demand early repayment if Ukraine’s debt exceeds 60 per cent of its GDP — a barrier already breached. So far Russia has not demanded early payment but it may also be unwilling to negotiate alternative terms.
Asked at a recent conference whether Russia would be part of the debt-restructuring process, Ms Jaresko said the government looked forward to meeting with all its creditors and would approach and treat them on an equal basis. But, she added, there had been “no official communication” with Russia.
On the plus side, Ukraine’s upcoming debt payments in the next few months are not expected to push the country over the edge of its $6bn international reserves and on Monday the Ministry of Finance reported it had paid out nearly $60m on bonds issued in 2011.
But markets are sending out clear signals of distress.
Ukraine’s hryvnia, already the world’s worst-performing currency, fell to a new low of 33.5 per US dollar on Tuesday as the ceasefire wavered. The central bank has announced plans to try to defend the currency, banning loans to clients buying foreign currency and increasing controls on import operations.
Prices for Ukraine’s bonds also dropped to an all-time low, with the price of a $2.6bn bond due in 2017 down to 41.8 cents on the dollar.
Ongoing fighting and its impact on the country’s economy could mean this is the wrong time to calculate the right haircut, says Gabriel Sterne of Oxford Economics.
If the country extends the maturity of its debt until peace is restored it will be in a better position to see what sort of losses bondholders should be asked to take.
Ukraine is indicating that it plans to complete talks in June, a fast turnround given the complications.
But without a ceasefire and ensuing economic stability, debt sustainability is difficult to calculate, says Timothy Ash, head of emerging market research at Standard Bank.
“The IMF needs to know the framework of the economy to work out how sustainable the country’s debt is,” he says. “It can’t plug a hole that keeps changing size.”
Conflict clouds Ukraine’s debt distress
When Ukraine’s president pleaded for help at last month’s World Economic Forum he worried aloud that the international community might be suffering from “Ukrainian fatigue”.
He may be right. Of two countries in Europe in the grip of debt distress, Greece is in the spotlight, yet Ukraine could be headed for one of the largest debt restructurings in history.
It has been almost a year since Russia annexed Ukraine’s Crimea Peninsula, sparking a cycle of violence and ceasefires between Kiev and Russian-backed separatists while the country slides towards bankruptcy.
In February, the International Monetary Fund appeared to ride to the rescue, announcing a four-year credit programme worth $40bn.
Precisely how the Washington-based fund arrived at that figure is proving controversial. The IMF will provide $17.5bn, with close to $10bn expected to come from the US, EU and international organisations. That leaves a large chunk poised to come at the expense of private creditors.
In an interview with the Financial Times, Natalia Jaresko, Ukraine’s finance minister, said the country planned to begin talks with foreign investors in March, targeting up to $15bn.
“I’m comfortable and quite confident that our creditors will work with us to find the best possible solution that is in everyone’s interest,” she said.
It is unclear whether this is the sum of debt intended to be pushed back with longer repayment dates, or the haircut planned on the debt. Ukrainian bonds trade far below face value but if a severe haircut is put in place the scale of loss could still come as a surprise.
Analysis by the Institute of International Finance (IIF) found that by the end of last year Ukraine had about $17.25bn in outstanding bonds, plus $1.25bn in loans and $3.3bn in commercial loans guaranteed by the state, making a pool of about $20bn.
Targeting $15bn out of $20bn is a tall order but the odd set-up of Ukraine’s debt is expected to make negotiations even more difficult.
One investor, US asset manager Franklin Templeton, holds close to half of the bonds on the market, giving it the power to block a restructuring deal under majority voting procedures in the terms of bonds it holds sizeable positions in.
A further $1bn was issued under a guarantee from the US and is unlikely to be part of a restructuring deal according to the IIF, while $3bn is held by Russia, the country Ukraine accuses of supporting insurgency in the east.
That bond was the first part of a larger rescue loan agreed between Russian President Vladimir Putin and former pro-Russian Ukrainian President Viktor Yanukovich, a deal stopped when Mr Yanukovich fled the country.
Russia’s bond, which is due to be repaid in December, also contains an odd clause allowing Moscow to demand early repayment if Ukraine’s debt exceeds 60 per cent of its GDP — a barrier already breached. So far Russia has not demanded early payment but it may also be unwilling to negotiate alternative terms.
Asked at a recent conference whether Russia would be part of the debt-restructuring process, Ms Jaresko said the government looked forward to meeting with all its creditors and would approach and treat them on an equal basis. But, she added, there had been “no official communication” with Russia.
On the plus side, Ukraine’s upcoming debt payments in the next few months are not expected to push the country over the edge of its $6bn international reserves and on Monday the Ministry of Finance reported it had paid out nearly $60m on bonds issued in 2011.
But markets are sending out clear signals of distress.
Ukraine’s hryvnia, already the world’s worst-performing currency, fell to a new low of 33.5 per US dollar on Tuesday as the ceasefire wavered. The central bank has announced plans to try to defend the currency, banning loans to clients buying foreign currency and increasing controls on import operations.
Prices for Ukraine’s bonds also dropped to an all-time low, with the price of a $2.6bn bond due in 2017 down to 41.8 cents on the dollar.
Ongoing fighting and its impact on the country’s economy could mean this is the wrong time to calculate the right haircut, says Gabriel Sterne of Oxford Economics.
If the country extends the maturity of its debt until peace is restored it will be in a better position to see what sort of losses bondholders should be asked to take.
Ukraine is indicating that it plans to complete talks in June, a fast turnround given the complications.
But without a ceasefire and ensuing economic stability, debt sustainability is difficult to calculate, says Timothy Ash, head of emerging market research at Standard Bank.
“The IMF needs to know the framework of the economy to work out how sustainable the country’s debt is,” he says. “It can’t plug a hole that keeps changing size.”
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