Ukraine Takes Talks to Templeton Turf as Debt Payment Looms

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Ukrainian Finance Minister Natalie Jaresko will travel to the home state of the nation’s biggest creditor on Wednesday as time runs out to reach a debt restructuring deal before a $500 million bond matures next month.

The meeting, scheduled to take place in San Francisco on Aug. 12, will be the “last chance” to reach a deal to restructure $19 billion of international debt, the Finance Ministry said in a statement on its website. Talks will be held between Jaresko and a four-member creditor committee led by San Mateo-based Franklin Templeton that owns just under half of the $19 billion of bonds Ukraine is restructuring.

The meeting comes as negotiations between the two sides faltered in the past week amid disagreements over the amount of debt relief bondholders should offer the war-ravaged nation. A high-level meeting proposed by the government to take place in London yesterday was turned down by creditors seeking more time to review the government’s latest offer.

“It’s time to end this game,” Vitaliy Sivach, a Kiev-based bond trader at Investment Capital Ukraine, who thinks the two sides could agree to a 20 percent principal reduction, said by e-mail. “Jaresko will try to make a final offer and strike a deal. Otherwise, it’s a lose-lose outcome for everyone.”

Bondholders last week included a principal writedown in their proposal for the first time, offering a so-called haircut of 5 percent to face value, conditional on economic performance, a person familiar with the details said on July 30. Ukraine was said to be looking for a 40 percent writedown in June.

Smaller Losses

Kiev will consider imposing smaller losses on the face value of the bonds than it previously sought, a person familiar with the negotiations said Friday.

The sovereign’s $2.6 billion of debt due July 2017 fell 2.8 cents to 55.6 cents on the dollar in the past five days, the first weekly decline since the period ended June 19.

If a deal isn’t reached next week, Ukraine would be forced to implement “alternative options” to meet debt-sustainability targets laid out in a $17.5 billion International Monetary Fund aid program, the Finance Ministry reiterated in today’s statement, without elaborating.

Creditors must be given at least 21 days to consider any proposal to restructure the Sept. 23 bond before voting on it. The government will probably have to freeze debt payments before the security comes due if no agreement is reached this week, a person familiar with the talks said Monday.

A spokesman for the Finance Ministry earlier said the talks next week would take place in San Mateo, which is about a 25 minute drive from San Francisco.

“The fact that talks are in California shows that a final agreement is highly dependent on the view of the main creditor,” Alexander Pecherytsyn, a Kiev-based economist at Credit Agricole Ukraine said by e-mail. “The news that the meeting will finally take place shows the desire of both parties to reach a consensus.”

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