Ukraine’s third-biggest bank reached a deal with a bondholder group to change terms on almost $1.5 billion of debt as the government gears up for tougher negotiations with sovereign creditors.
State Export-Import Bank of Ukraine, known as Ukreximbank, said holders of close to 30 percent of its 2015, 2016 and 2018 bonds favor the plan, which increases coupon sizes and extends maturities by seven years. The proposal, which bondholders will vote on next month, offers early repayment of 50 percent of principal and no writedowns, according to a statement on the bank’s website. The 2016 and 2018 securities rallied at least 2 cents each.
While a “positive development,” reaching an agreement with sovereign bondholders is likely to be much more difficult, Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail.
The Ukreximbank bond overhaul represents the first stage of a $23 billion restructuring that Ukraine wants to complete in time for an International Monetary Fund review next month as it seeks to secure the next slice of a $17.5 billion loan. Cutting a deal with sovereign holders is complicated by Ukraine’s insistence that they accept a writedown of principal, something a creditor group led by Franklin Templeton say isn’t needed.
Ukreximbank is one of three state-owned companies able to offer better terms than the sovereign because its bonds are only being used to meet one of the IMF’s three restructuring targets. The other two are AT Oschadbank and Ukrainian Railways.
Richard Deitz, the president of VR Capital Group Ltd., Galia Velimukhametova at money manager GLG Partners LP, Julio Herrera of Oaktree Capital Management LP and Stefan Benedetti of Pioneer Investment Management Ltd. were all quoted in the Ukreximbank statement as saying they support the reprofiling.
Ukreximbank said it will increase the coupon payment on the 2018 note by one percentage point to 9.75 percent and will make a 50 percent principal payment in January 2021, with the remainder disbursed in eight equal semi-annual installments thereafter.
The coupon on the 2016 note will be raised to six-month Libor plus 7 percent while an initial 50 percent paid out in February 2020 with the rest disbursed in six semi-annual installments. The September 2015 note will pay 9.625 percent with half the principal being returned in April 2019, according to last month’s proposal.
“If I were a bondholder, I would take the deal because I think it’s the best they can hope for,” Per Hammarlund, the chief emerging-markets strategist at SEB AB in Stockholm, said by e-mail.
Ukreximbank’s $600 million of notes maturing in January 2018 rose 2.12 cents to 68.325 cents on the dollar at 5:54 p.m. in Kiev, a 22 cent premium to the 2017 sovereign security. The bank’s $125 million of February 2016 notes jumped 3.02 cents to 53.52 cents.
Ukraine’s Finance Minister Natalie Jaresko said on Thursday that talks are progressing, signaling a thaw with creditors following public disagreements as to whether the IMF’s restructuring targets can be reached without a principal writedown.
“The results of the negotiations are fully in line with the objectives of the IMF supported program,” the Finance Ministry said in an e-mailed statement on Tuesday. The ministry “underlines that the sovereign debt restructuring will also need to reduce debt levels and debt service to meet the three IMF-agreed targets.”
VR Global, GLG Partners and funds managed by Oaktree Capital said on April 22 they formed a committee holding about 27 percent of Ukreximbank’s 2015 bond.
Holders of the note agreed in a vote last month to push the bond’s maturity back by three months to July 27 to allow time for a restructuring deal to be reached. Ahead of the vote, Ukreximbank promised to pay principal in full and award creditors higher coupon payments if a maturity-extension was granted.
Ukreximbank needs at least two third of bondholders to participate in a vote to change terms on the debt, of which 75 percent need to say yes to extend the maturity. The participation threshold on such a vote drops to one third at a second meeting.