Ukraine raised the pressure on creditors to accept a writedown on their holdings as the government secured permission to halt debt payments.
The nation’s bonds slumped the most in two months as Ukraine said a proposal giving it the power to impose a moratorium on international bondholders was passed by parliament Tuesday. The nation is in a “difficult economic situation” and “repaying international debt is a question of justice,” the government said in an e-mailed statement.
Ukraine is seeking to strengthen its hand in negotiations with creditors who have repeatedly said they see no need to accept a reduction in principal as a June 15 International Monetary Fund target for the restructuring approaches. The government needs to strike a deal with bondholders or risk the next tranche of a $17.5 billion IMF loan as it struggles to keep afloat an economy ravaged by a yearlong conflict with pro-Russian separatists in the nation’s easternmost regions.
“This is a logical next step to show people they are serious,” Dray Simpson, the London-based managing director of emerging markets at Cantor Fitzgerald Europe, said by e-mail on Tuesday. “Up to now there has been a lot of talk and very little action and any confrontations have been won by creditors. If Ukraine are going to reverse that trend they need to be firm.”
The next coupon coming due is a May 21 payment of $33 million on a $1 billion note maturing in November 2016, according to data compiled by Bloomberg. Ukraine is due to pay $75 million of interest on June 20 on a Eurobond Russia bought from the regime of former President Viktor Yanukovych before he was overthrown in February 2014. Russia has refused to come to the table to renegotiate the $3 billion note that matures in December.
Any moratorium wouldn’t apply to debt issued by state-run companies including State Export-Import Bank of Ukraine, AT Oschadbank and Ukrainian Railways, according to the statement.
“Our current debt levels are unsustainable and any deal with our international commercial creditors must include maturity extensions, coupon reductions and principal reductions,” Finance Minister Natalie Jaresko said in a separate statement. “There is no alternative.”
Ukrainian sovereign bonds reversed gains after the statement, extending their decline to six days. The nation’s $1.6 billion of notes maturing in September 2017 slid 1.26 cents, the most in two months, to 45.03 cents on the dollar at 7:08 p.m. in Kiev.
Ukraine’s biggest creditor is Franklin Templeton, which along with three other companies owns $8.9 billion of the nation’s debt. A spokesman for the creditor group declined to comment when contacted by phone.
A creditor group led by Franklin Templeton disclosed on Monday the names of three other members after Ukraine said that previous refusals to do so showed a lack of transparency.
Tensions between the two sides also rose as the government in Kiev said creditors refused to meet Jaresko. Bondholders on May 12 called the lack of progress “disappointing” and said the government had failed to respond to a committee proposal submitted last month.
“The government has the right to spend money which is paid by taxpayers in Ukraine on its citizens’ needs, but not on repaying loans that were taken by” Yanukovych’s regime, the government said Tuesday.