Ukraine Hardens Stance as It Rebuffs Templeton-Led Debt Plan

Ukraine rejected the first proposal from a group of creditors led by Franklin Templeton, signaling it’s ready to take a hard line in a bid to restructure $23 billion of debt.

The offer, which involved only a maturity extension, didn’t go far enough to meeting Ukraine’s targets under an International Monetary Fund bailout, Finance Minister Natalie Jaresko told reporters in Washington on Friday. The group of five creditors, which own about $10 billion of the eastern European country’s debt, is pushing for a deal that avoids a writedown to their principal holdings.

“It looks like the Finance Ministry’s strategy is to play tough and approach the investors with the stick at this stage,” Dmitri Petrov, an analyst at Nomura Holdings Inc. in London, said by e-mail on Friday. “The chances of getting this deal done in time are decaying.”

Ukraine has set the end of May as its deadline to agree on new terms for 29 bonds and loans, with the aim of saving $15.3 billion over four years, one of three goals in a $17.5 billion IMF package. The country needs international aid after a yearlong conflict in the east with pro-Russian separatists drained reserves and pushed the country into recession.

The government’s $2.6 billion of notes due in July 2017 were little changed at 43.599 cents on the dollar by 7:59 p.m. in Kiev, having tumbled 16 cents this year.

Not Enough

Franklin Templeton is Ukraine’s biggest bondholder with about $7 billion of debt, followed by the Russian government, which is demanding repayment of a $3 billion Eurobond by the December maturity.

In addition to the $15.3 billion savings target, the IMF bailout requires Ukraine to lower its debt to 71 percent of gross domestic product by 2020 and reduce the budget’s gross-financing needs to an average of 10 percent of GDP from 2019 to 2025. The debt restructuring will include maturity extensions and discounts in coupon and nominal values, Jaresko said on Friday.

The creditor proposal “doesn’t appear to meet the needs of Ukraine with regard to three targets,” Jaresko said. “It includes only a maturity extension, which only helps us with target 1, but not targets 2 and 3. So I believe that we will continue to have these negotiations.”

Jaresko said last month the government needs to reach a deal before an IMF review in June to qualify for the second part of a rescue package after getting $5 billion in March. That helped bolster international reserves to $9.97 billion, after they slid by almost two thirds in a year to a record-low $5.63 billion in February.

‘Talks On’

Blackstone Group International Partners LLP is advising the Templeton-led group, while Lazard Ltd. is working on the government’s side.

“Talks are on with creditors,” Jaresko said on Friday. “I would like to see faster, more positive effects but we have what we have.”

Negotiations over a $750 million note due April 27 from the State Export-Import Bank of Ukraine, one of the bonds included in the country’s debt restructuring program, hit a snag this week. A meeting to agree on a three-month extension failed to get enough attendance on April 13. Bondholders are scheduled to meet April 27 for a second vote.

In a presentation Friday to investors in Washington, the Finance Ministry said Ukreximbank is seeking to delay the maturity to negotiate a re-profiling of debt.

Ukreximbank said on Wednesday investors won’t face a reduction to their principal holdings if they support the motion.

“I’m confident that the creditors will see that it’s in all of our interests to agree to a standstill and let us have the time,” Jaresko said. Then Ukraine and creditors can “move forward with the rest of the restructuring in a fair and transparent fashion,” she said.

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