Here Comes The Next Greece------Ukraine Seeks Haircut On $40 Billion Of Private Debts

Ukraine Finance Minister Natalie Jaresko has a warning for creditors of the war-torn country: Come to the table now torestructure $40 billion in debt or face the risks of an uncertain economic, political and military climate down the road.

The American-born finance chief, in an interview, said that if creditors don’t emerge and begin earnest and transparent negotiations on the debt before a deadline for an agreement at the end of May, they could face a series of risks to Ukraine’s stability. She noted the potential for further deterioration in Ukraine’s economy, a revived conflict between Kiev and Russia-backed separatists, or even a Ukrainian parliament weary of paying debt accumulated during the rule of the country’s fugitive former president, Viktor Yanukovych.

“They’re misunderstanding, first of all, the depth of the economic-financial distress that the country is in today,” she said.

If the situation in Ukraine deteriorates, Ms. Jaresko said, calls could grow to forsake payments on the country’s outstanding debt, a step the government didn't want to take.

“There have been a lot of discussions about that in our parliament, a somewhat populist perspective among certain parliament factions that this debt ought never to be paid,” she said. “That’s one of those risks that creditors ought to be taking into account.”

Ms. Jaresko, visiting Washington for an gathering of the International Monetary Fund, said she has had constructive talks with individual creditors but can only negotiate effectively on restructuring the debt with a clearly defined group. She dismissed a proposal put forward recently by a group of creditors that includes Franklin Templeton Investments, the largest private holder of Ukraine’s debt.

In an opening salvo before restructuring talks, the group is asking for an extension of the debt’s maturity that doesn’t include “principal debt reductions.” But Ms. Jaresko, who says she hasn’t been informed of the composition of the group, says an extension of the maturity won’t be enough to achieve IMF-mandated targets without a reduction in interest rates and the nominal value of the obligations.

“We’re not moving forward with discussions as fast as I had hoped,” she said. Spokesmen for Franklin Templeton and Blackstone Group International Partners LLP, which is advising the bondholders, didn’t immediately respond to a request for comment.

In March, the IMF approved a bailout package of $17.5 billion in loans over four years. But the country will need to draw on other international funding sources and restructure its debt to address its total financing needs, estimated by the fund at $40 billion over the period. Ukraine is also negotiating currency swaps with other countries to help with liquidity, and may have new ones to announce with European countries later this week, Ms. Jaresko said.

IMF deputy managing director David Lipton said in a statement Tuesday that it is “vital” creditors reach an agreement on the debt restructuring before the IMF reviews the country’s progress ahead of the next bailout disbursement in June.

In a worrying sign for Ukrainian debt, holders of $750 million of the debt of the State Export-Import Bank of Ukraine didn’t come to an agreement at meeting on extending repayment for three months, the bank said Tuesday.

The bondholders have one more chance to agree on a maturity extension before the bond comes due later this month, which could lead to a default.

“Technical default will not in any way affect the operations of the bank,” also known as Ukreximbank Ms. Jaresko said.

Russian Finance Minister Anton Siluanov on Tuesday threatened to take Kiev to arbitration if it doesn’t repay a $3 billion debt on time. Ukraine considers the Russian debt part of the package that needs to be restructured with the other creditors.

Ms. Jaresko is painting a bleak picture in part to bring creditors to the table, but she said reforms mandated by the IMF are proceeding despite an expected economic contraction of more than 7% in the first quarter. Kiev has passed laws to battle corruption and raise the price consumers pay for natural gas to slice government subsidies for the fuel.

“A lot of things that have bothered investors are being peeled away like an onion,” she said

Ukraine Warns Creditors as Debt Restructuring Looms - WSJ.

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