Daily Management Review

Ukraine Reaches Agreement with Creditors, Russia Disapproves Deal


08/27/2015




Ukraine, troubled with an ethnic war, avoided failing a debt repayment crisis after it reached what its finance minister called a "win-win" deal with its largest group of creditors.

The deal would ease repayments on its $18 billion debt giving the debt strapped country some breathing space to try and fight the economic crisis along with the cost of fighting with pro-Russian separatists.

Ending months of tense negotiations aimed at helping to keep Ukraine on track with its International Monetary Fund-led bailout program, the agreement included a write-down of 20 percent of the principal
owed.


Ukraine has, for the time being, managed to avert a unilateral debt default.

While the creditor of Ukraine assured full support from bondholders for the deal, Russia, one of the largest creditors to Ukraine raised a well anticipated voice of dissent and said that it would continue to demand full repayment by Ukraine of a $3 billion eurobond coming due in December.

The creditors, led by Franklin Templeton and including other asset managers, accepted a small increase in the coupon on most of the bonds to 7.75 percent and extended each maturity by four years. However the agreement still requires to be approved by creditors outside the group.

The payments due over the next four years by Ukraine would be reduced to $11.5 billion after the agreement.

This would enable the country to free up funds for use in the war efforts in the east, initiate support programs for the poor, cover purchases of Russian gas over the winter period and help keep the national currency, the hryvnia, stable, said a statement issues by the Ukrainian finance ministry.

"Everyone's done well out of this deal. That's why it's collaborative. It's not one side winning, it's a win-win situation. We're all now moving forward without putting the value of the bonds at any further risk,"

Finance Minister Natalia Yaresko said late on Wednesday in remarks embargoed until Thursday.

In a joint statement, the creditors and Ukraine appealed to other bondholders to approve the deal. The two parties also urged the international community to provide non-debt support to Ukraine in the form of grants.

IMF is hopeful that the agreement arrived upon at Kiev would be ratified by other creditors.  
 “It was important that the agreement gained broad support from all concerned eurobond holders," IMF chief Christine Lagarde said in Washington.

Russia, one of the biggest creditors of Ukraine, said that the country does not agree to the deal. In a statement issued after the announcement of the agreement, the Russian Finance minister Anton Siluanov said: “Moscow needed foreign currency and therefore could not participate in Ukraine's restructuring agreement.”

Unlike other private debts, the debt that Kiev owed to Moscow was official and country-to-country debt  and hence there was a fundamental difference between its credit and other credits of Ukraine, Russia said.

"We have always insisted and will continue to demand from Ukraine a full implementation of the (Eurobond) terms. We insist on a full repayment in December of this year of $3 billion, including interest payments," Siluanov told the state-run Rossiya 1 television channel.

(Source: www.reuters.com) 






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