Hedge funds including VR Global Partners LP are supporting a debt-restructuring offer from Ukraine’s third-biggest bank, reducing the threat of a default that would risk derailing the nation’s $23 billion overhaul.
VR Global, GLG Partners LP and funds managed by Oaktree Capital Management LP have formed a committee holding about 27 percent of the $750 million bond due April 27, according to an e-mailed statement on Wednesday from the law firm representing the group. The show of support comes two days after State Export-Import Bank of Ukraine put forward a plan including a seven-year maturity extension and higher coupon payments.
Averting a default by the lender next week would move Ukraine a step closer to meeting a deadline, now only one month away, to reach new terms on 29 bonds and loans required under a $17.5 billion International Monetary Fund bailout. Ukreximbank needs bondholders to vote in favor of a three-month maturity extension next week to give it time to iron out a restructuring deal.
“There is a good chance for success of the vote,” Dmitri Petrov, an analyst at Nomura Holdings Inc. in London, said by e-mail. “It’s positive for the sovereign because it helps meet the first IMF target. There is also some expectation of more softness from the sovereign side now.”
The 2015 securities of Ukreximbank declined 0.7 cent to 74.85 cents on the dollar by 6:52 p.m. in Kiev, after a rally sent them soaring 11 cents on Tuesday. The lender, which failed to garner enough support for a temporary maturity extension earlier this month, needs at least one third of creditors to participate in a vote on April 27. Of those who vote, 75 percent need to say yes.
The debt revamp is happening against the backdrop of a yearlong conflict in Ukraine’s east between pro-Russian separatists and government forces that’s crippled the economy and drained international reserves. Before getting a $5 billion-cash infusion from the IMF in March, Ukraine’s reserves tumbled to a record $5.63 billion.
“The terms put forward by Ukreximbank represent a reasonable compromise,” Richard Deitz, president and founder of VR Global, said in the statement. “The ad hoc committee looks forward to working together with Ukreximbank and its advisers to implement the reprofiling by July 27.”
The creditor group including VR Global has hired Brown Rudnick LLP to respresent it, according to the statement.
Ukreximbank’s proposal involves paying 50 percent of the principal in April 2019, while redeeming the rest in semi-annual installments starting October that year. The coupon would also increase to 9.625 percent from 8.375 percent from April 27 under the offer.
Support for the Ukreximbank offer “clearly increases the chances of the restructuring being approved,” Dray Simpson, managing director of emerging markets at Cantor Fitzgerald Europe, said by e-mail on Tuesday. “There are still some investors who will vote no in the hopes of receiving an additional improvement or even par next week.”
Ukraine is scrambling to make progress on its broader sovereign restructuring after Finance Minister Natalie Jaresko last week rejected the first proposal put forward by a five-member creditor group including Franklin Templeton, its biggest bondholder.
The government’s $2.6 billion of debt due in July 2017 rallied for a second day on Wednesday, adding 2.1 cents to 46.89 on the dollar, the highest since March 11.
Creditors of Ukreximbank and two other state companies have been promised better terms than sovereign bondholders. The lender’s debt is subject only to the first of three IMF targets for the country, namely the one that stipulates Ukraine should reduce financing costs by $15.3 billion over the next four years.
Government bonds, by contrast, must also be restructured to meet targets on public debt ratios and budget financing, suggesting creditors will face harsher terms.