City of Kiev Creditors Reject Debt Offer They Say Isn't Fair

  • Bondholder group represents owners of Kiev's 2015, 2016 notes
  • Municipality made proposal after restructuring talks failed

A committee of investors rejected terms put forward by Ukraine’s capital to restructure its foreign debt after negotiations with the group failed to reach an agreement on easing the city’s $550 million debt burden.

The bondholder group won’t support terms offered by the City of Kiev, including a 25 percent reduction to face value and a switch to new sovereign notes maturing 2019 and 2020, according to an e-mailed statement. The committee, which didn’t identify its members, said they owned a combined 38 percent of the bond that was due last week and 22 percent in a note maturing next year.

"These terms do not represent fair value to the holders of the city’s notes," the creditor committee said in the statement. "The committee continues to be willing to work with representatives of the city and the Ministry of Finance and their advisers to agree a balanced proposal."

Kiev unilaterally asked all bondholders to accept new terms on its debt last week after months of negotiations failed. The city is looking to cut its payment burden as part of an overhaul prescribed in Ukraine’s $17.5 billion International Monetary Fund loan sealed to revive the economy amid a conflict with pro-Russian separatists.

Payment Moratorium

City lawmakers in Kiev imposed a moratorium on foreign-debt payments in October as talks with undisclosed creditors were faltering, a person familiar with the negotiations said at the time. Kiev’s latest proposal, which the local government had also made in its talks with the creditors, represents a "fair and reasonable compromise," the Ukrainian authorities said last week.

The city’s $300 million bond maturing July 2016 was little changed at 74 cents
on the dollar by 2:45 p.m. in Kiev after rising 1.5 cents on Monday to the
highest close in a year. The note traded 4-5 cents below sovereign
bonds that are scheduled to be replaced by new securities on Thursday as part
of the country’s broader restructuring.

Of Ukraine’s $23 billion in foreign debt earmarked for restructuring in the country’s IMF-led bailout, investors have accepted new terms on $15 billion in sovereign notes and $2.8 billion in bonds from two of the nation’s three largest banks. Russia, which bought a $3 billion Eurobond from former President Viktor Yanukovych before he was ousted in 2013, has declined to participate in the sovereign overhaul, preparing for a legal battle in English courts as it seeks full repayment of the debt.

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