Ukraine secures deal with creditors

Bondholders agree to 20 per cent writedown in effort to avert default and revive economy decimated by war

Ukraine’s President Petro Poroshenko (L) is welcomed by European Commission President Jean-Claude Juncker (R) ahead of their meeting at the EU Commission headquarters in Brussels, Belgium. Ukraine said it has agreed a restructuring deal with creditors after five months of talks (Photograph: Yves Herman/Reuters)

Ukraine’s President Petro Poroshenko (L) is welcomed by European Commission President Jean-Claude Juncker (R) ahead of their meeting at the EU Commission headquarters in Brussels, Belgium. Ukraine said it has agreed a restructuring deal with creditors after five months of talks (Photograph: Yves Herman/Reuters)

 

Ukraine agreed a restructuring deal with creditors after five months of talks, giving President Petro Poroshenko some breathing room as he seeks to avert default and revive an economy decimated by a war with separatists backed by Russia.

Finance Minister Natalie Jaresko reached an accord with a Franklin Templeton-led creditor committee that includes a 20 per cent writedown to the face value of about $18 billion of Eurobonds, the first of which matures in less than a month. The agreement also pushes back redemption dates by four years and sets interest at 7.75 per cent on all maturities, according to an e-mailed statement from the Finance Ministry. Russia is being offered the same terms as private bondholders.

Bonds surged the most on record. “It’s been a very difficult five months,” said Jaresko, a Chicago native who was given Ukrainian citizenship when Poroshenko appointed her finance minister last December. “I’m confident that the markets will receive this quite well,” she said in an interview on Wednesday. Poroshenko is seeking to meet the conditions of emergency assistance from the International Monetary Fund, which says debt restructuring should save Ukraine $15.3 billion through 2018, while trying to end the worst recession anywhere in Europe, the Middle East or Africa.

The economy of the largest country inside Europe by area is poised to contract 8.7 per cent this year, forecasts compiled by Bloomberg show.

Ukraine $2.6 billion of notes due in July 2017 jumped 8.9 cents to 64.5 cents on the dollar at 12:32 p.m. in Kiev.

Payment suspension

The 49-year-old Ukrainian leader, elected last year after becoming a billionaire in the chocolate business, was racing to reach a comprehensive accord with creditors before a $500 million bond comes due next month.

Ukraine will temporarily suspend payments on that bond and a €600 million note due in October, the Finance Ministry said in today’s statement. The country has another $4 billion of payments scheduled by year’s end, including to Russia, which reiterated after the deal was announced that it won’t take part in the restructuring. A final agreement requires the approval of 75 per cent of bondholders of each note at a meeting in which at least two- thirds of them are represented.

Ukraine’s debt contains cross- default clauses that mean missing a payment on one results in default on all. The government earlier threatened to declare a debt moratorium to push negotiations along. Franklin Templeton, which owns about $7 billion of Ukrainian bonds, were joined in the talks by fellow creditors BTG Pactual Europe LLP, TCW Investment Management Co. and T. Rowe Price Associates Inc. Vladimir Putin’s government bought $3 billion of two-year, 5 per cent bonds from Ukraine to support his longtime ally, then- President Viktor Yanukovych, in December 2013. Protests in the capital Kiev turned deadly two months later, forcing Yanukovych to flee to Russia and Putin to end what would have been a $15 billion aid package for the country of 45 million people. “I’m offering Russia a restructuring opportunity that is the same as everyone else’s,” Jaresko said in the interview. “I’m hopeful that they will participate in this. It’s the best way to depoliticise this. It’s the best way for us to all move forward together.”