Ukraine Minister to Meet Creditors as Progress Made Toward Deal

Ukrainian Finance Minister Natalie Jaresko will join negotiations with creditors including Franklin Templeton next week after the two sides made progress toward a $19 billion debt restructuring.

Jaresko will meet the four-member bondholder group in Washington, where she will attend the U.S.-Ukraine Business Forum, on July 15, the Finance Ministry and creditors said in a joint e-mailed statement Friday. Her deputy, Artem Shevalyov, told journalists Thursday that freezing interest payments on bonds was still a possibility.

Having the minister attend meetings signals the two sides are moving closer to bridging differences on the need for a writedown on principal holdings that had triggered a two-month deadlock. The nation’s $2.6 billion of bonds due July 2017 have risen every day this week on speculation that that enough headway will be made to prevent Ukraine from reneging on the $120 million payment on that debt due on July 24.

The Ukrainian delegation and creditors held a conference call Friday, during which the parties “reiterated their common aim to finalize the terms of Ukraine’s debt operation as soon as possible,” the ministry said in the statement.

The two sides agreed to take talks private last week, which means creditors can’t trade the bonds. Along with Franklin Templeton, Ukraine’s biggest bondholder, the government is negotiating with BTG Pactual Europe LLP, TCW Investment Management Co. and T. Rowe Price Associates Inc. The four members together own about $9 billion of Ukraine’s debt.

Moratorium ‘Possible’

The country is seeking debt relief after a 16-month conflict with pro-Russian separatists in its easternmost regions hobbled the economy and drained reserves, forcing Ukraine to lean on international aid to avert financial ruin.

A $17.5 billion International Monetary Fund loan agreed to in March requires Ukraine to reprofile its external debt to generate savings of $15 billion over four years, as well as reduce debt as a percentage of gross domestic product and relieve the budget’s gross financing burden.

The government warned in June it may decide freeze interest payments this month if talks didn’t move forward.

“As of now, any scenario is possible,” Shevalyov said in Kiev on Thursday about the possibility of a moratorium. The IMF is ready to keep disbursing its loan if the nation stops paying interest, he said, specifying that a $3 billion Eurobond owed to Russia would also be affected. Russia has threatened to take its neighbor to court if it fails to redeem the note in December.

“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.”

Seeking Haircut

The sovereign’s July 2017 notes climbed 0.63 cent to 52.73 cents on the dollar by 10:11 p.m. in Kiev, the highest level on a closing basis since Feb. 17.

Before agreeing to talks without preconditions this week, the government asked bondholders to accept a 40 percent so-called haircut, a person familiar with the nation’s proposal said last month.

Creditors refused to agree to losses, crafting an offer that they said met IMF conditions by extending due dates and reducing interest payments alone. That was before the Washington-based fund downgraded its economic forecasts for Ukraine, including worsening this year’s recession outlook to 9 percent from 5.5 percent.

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