Ukraine should delay debt payment until 2019 without writing it off – creditors committee

Writing off a part of Ukraine’s public debt will only add to the country’s difficulties in capital borrowing, said the Committee of private creditors negotiating with the country.

“Ukraine understands the criteria for debt restructuring proposed by the IMF to be writing off the debt, introducing lower interest payments and prolongation of fees. Such an approach will delay Ukraine’s entering capital markets, increase the cost of borrowing and the country's dependence on official financing,” the Committee said in a letter, TASS reported on Wednesday.

The creditors’ committee that is engaged in talks with Ukraine includes T. Rowe Price, TCW Group, BTG Pactual and Franklin Templeton investment funds, which own $ 8.9 billion of Ukrainian debt, according to The Wall Street Journal.

The creditors offer “not to pay the principal sum until 2019,” instead of writing off the debts. At the same time, they showed readiness to participate in trilateral talks in Washington with the participation of the Ukrainian Ministry of Finance and the IMF.

Such a meeting can take place as early as June 30 or July 1, said Ukraine’s Finance Minister Natalia Jaresko on Monday. However, Kiev has not yet received a reply from the Committee of creditors on its debt restructuring proposal. “First there will be a meeting with the IMF, where all these proposals will be discussed in a trilateral format,” she said.

READ MORE: Ukraine to get new IMF loans despite inability to repay private lenders

On June 19, Jaresko said that Ukraine had sent a new proposal to creditors that “includes a reduction in the amount of debt, a change in the interest rate and extension of maturity date.”

She added that the creditors’ current requirement was to “use $8 billion from the reserves of the National Bank of Ukraine to pay off debts” and that such a measure won’t help the stabilization of the country's financial system.

“This is illegal, and we are not satisfied with it,” said Jaresko, adding that the IMF supports Kiev's position on this issue.

Ukraine could save $15.3 billion in payments on government bonds without writing off part of its principal debt, which the government is seeking in negotiations with international lenders, said senior vice president of Moody's Investors Service Kristin Lindow in an interview with Bloomberg.

The failure of the negotiations, as well as the possible introduction of a moratorium on foreign debt payments will have long-term negative consequences for Ukraine as an issuer, she said. Moody's said that in case Ukraine refuses to pay bonds it will not be able to immediately return to the international capital market.

Ukraine is trying to restructure its $19 billion debt to get a bailout loan from the International Monetary Fund. The negotiations have come to a stalemate, with the creditors resisting writing off part of the nominal value of the debt, saying it is not a prerequisite set by the IMF.

“There are all kinds of ways to get to the $15 billion, with and without a haircut,” Lindow said. “The debt relief can be achieved in other ways - significant cuts in the coupon and a long grace period on repayments and without a principal haircut. But there seems to be a determination on the part of the Ukrainian government and the IMF to get that haircut.”