Templeton Said to Reject City of Kiev Bond Restructuring

  • London-based branch of fund manager said to hold 32% of bond
  • New terms accepted by most other holders of Kiev's debt

Franklin Templeton Investment Management Ltd. rejected terms put forward by the City of Kiev to restructure a $250 million bond, according to a person familiar with the talks, making it one of the only holdouts in Ukraine’s $23 billion debt restructuring.

The London-based branch of the U.S. money manager holds about 32 percent of the City of Kiev security that matured last month, the person said, asking not to be named because the talks are private. The restructuring terms, which included a principal writedown and maturity extension, were approved by 57 percent of bondholders on Dec. 8.

By holding out, Templeton Investment is setting itself apart from a sister fund based in the U.S. and managed by Michael Hasenstab, which voted in favor last month of a debt overhaul for $18 billion of Ukraine’s sovereign securities. The City of Kiev bond is one of the last notes to be reprofiled by the country as it seeks to reduce its debt burden to ease the effect of a war with pro-Russian rebels on its economy.

A spokeswoman for Franklin Templeton Investment Management in London was unable to comment.

Only Holdouts

Kiev unilaterally asked all bondholders to accept new terms on two of its notes in October after months of negotiations failed. As part of the deal, they were offered a 25 percent principal writedown and given warrants tied to economic growth to compensate.

While a minority of the 2015 investors rejected the proposal, nearly all of those in the $300 million debt due July 2016 voted in favor. Hasenstab is among holders of the note due next year, according to data compiled by Bloomberg.

Some investors were opposed to the new 2015 terms because the so-called haircut was bigger than the 20 percent accepted by owners of the sovereign’s securities, including Hasenstab, in October, according to Lutz Roehmeyer at Landesbank Berlin Investment GmbH, which owns City of Kiev bonds.

“Short-term bondholders wanted to see better treatment than long-term bondholders," said Roehmeyer, who oversees about 1 billion euros ($1.1 billion) in emerging-market debt as director of fund management at Landesbank Berlin. “I voted in favor because negotiating new terms increases the risk of default and not being paid at all."

The City of Kiev gave those who rejected new terms until 5 p.m. London time on Dec. 16 to agree to the restructuring, according to a Dec. 8 press release. Those who accept the deal will have their old bonds swapped into new securities on about Dec. 22. It will not be possible to give better terms to noteholders who reject the deal, Mayor Vitali Klitschko said in the statement.

Russia became a holdout after refusing to accept new terms on a separate $3 billion bond maturing next week.

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