Ukraine’s $32 Billion Eurobond Pile Means Restructure or Go Bust

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With less than $10 billion of reserves to repay $32 billion of foreign-currency bonds, Ukraine is running out of time to reach a deal with creditors.

Finance Minister Natalie Jaresko last week rejected a bondholder proposal to extend the maturities of its debt because it wouldn’t ease the over all burden enough without a reduction in principal, known as a haircut. The nation must repay $7.5 billion in government and corporate Eurobonds due this year and $5.3 billion in 2016, according to data compiled by Bloomberg.

“The creditors are trying to achieve a reprofiling without a haircut,” Michael Ganske, who helps manage $6 billion as the head of emerging markets at Rogge Global Partners Plc in London, said by phone on Friday. “Frankly speaking, I can’t see how that will work because debt-sustainability is not established with that.”

Ukraine needs to reach a deal with bondholders by the end of May to qualify for the next part of its $40 billion bailout package, led by the International Monetary Fund. Jaresko is negotiating with a group of five creditors, including biggest bondholder Franklin Templeton, as a fragile truce holds in eastern Ukraine, where pro-Russian insurgents have battled government troops for much of the last year.

IMF Targets

While such a proposal would allow Ukraine to save $15.3 billion in debt payments over the next four years, it would fail to comply with IMF targets to cut public debt to 71 percent of gross domestic product by 2020 from 94 percent this year and keep debt costs in the next decade below an average of 10 percent of economic output.

The $32 billion in outstanding foreign-currency bonds includes some securities not included in the restructuring negotiations, such as notes from steelmaker Metinvest Holding LLC and poultry producer Mironovskiy Hleboproduct SA. The figure also excludes loans that are part of the broader debt overhaul.

Ukraine’s $2.6 billion dollar bond maturing July 2017 fell 0.8 cent to 42.76 cents at 4:28 p.m. in Kiev after rising 0.33 cent last week, and compared with 60 cents at the end of last year. Metinvest’s $750 million notes due in February 2018 rose 0.4 cent to 53.38.

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