Ukraine Interest-Payment Freeze Still Possible as Talks Start

Ukraine said freezing interest payments on its bonds was still an option as the eastern European country holds direct negotiations with creditors including Franklin Templeton.

“As of now, any scenario is possible,” Deputy Finance Minister Artem Shevalyov told journalists in Kiev on Thursday. The International Monetary Fund is ready to keep disbursing its $17.5 billion loan if the nation imposes a moratorium, he said.

Ukraine and a four-member bondholder group started direct negotiations this week to change terms on $19 billion of debt after a 16-month conflict with pro-Russian separatists in the country’s east hobbled the economy and drained reserves. The government warned last month it may decide to stop paying interest on debt before the next disbursement is due July 24.

The nation’s $2.6 billion of bonds due July 2017 have risen every day this week on optimism that enough progress in negotiations will be made to prevent Ukraine from reneging on the $120 million payment on that security. The two sides agreed to take talks private last week, which means creditors can’t trade the bonds.

“We must have concrete progress,” Shevalyov said. “That step which we made last week, the agreement on confidentiality, is important, but not sufficient. We must continue talks that are happening this week and will be happening next week.”

For Ukraine to get $1.7 billion second disbursement from the IMF loan, the lender’s board must meet to approve it. Before that can happen, the country has to pass legislation, Shevalyov said. He called on parliament to adopt the laws next week so the board could meet by the end of the month, paving the way for aid to arrive in August.

Ukraine’s July 2017 notes climbed 0.59 cent to 52.13 cents on the dollar by 6:03 p.m. in Kiev, the highest level on a closing basis since June 8.

“If a moratorium is announced, it would cover all” bonds, Shevalyov said, specifying that the $3 billion Eurobond the nation sold to Russia in December 2013 would also be affected. Russia has threatened to take its neighbor to court if it fails to pay back the note.

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