Holders of $10 Billion of Ukraine's Debt Working on Restructuring Plan -- Update

By Chiara Albanese and Nick Shchetko 

Investors holding $10 billion of Ukrainian debt have joined forces to develop a restructuring plan for the country's debt which won't involve a reduction in the value of the bonds, according to financial and legal advisers of the group.

"A detailed proposal is being developed by the committee that provides Ukraine with the necessary financial liquidity support it has requested...without any principal debt reductions," Blackstone Group International Partners LLP and Weil, Gotshal and Manges LLP, which are advising the bondholders, said on Thursday.

The committee includes U.S. asset manager Franklin Templeton Investments, which with about $4 billion of the Ukrainian bonds at the end of December is the largest private holder of the country's debt.

The two advisers didn't respond to requests for further comment. Ukraine's Ministry of Finance also didn't comment on the bondholders' committee, which was formed at the government's request.

Still, the proposal doesn't guarantee the creditors will be fully repaid for the outstanding debt, according to Standard Bank analyst Tim Ash. The proposal "does not mean that a deal will be done on these terms, without a haircut," he said. "The approach adopted by the Finance ministry over the state bank restructuring process suggests a pragmatic approach," Mr. Ash said.

Earlier in April, Ukraine's finance minister Natalie Jaresko said the debt restructuring may include extension of maturity and lowering the coupon interest rate as well as nominal value of the obligations. At the time, she said there were no negotiations on the specifics under way.

The International Monetary Fund approved a $17.5 billion bailout package for Ukraine in March, but the country will need to draw into other international funding sources and restructure its debt to address its total financing need, estimated at $40 billion.

Ukraine is aiming to save $15.3 billion from debt restructuring with the implementation of a three-year cost-cutting plan agreed with the IMF, including $5.2 billion this year. The country's officials have also said they would seek to restructure a $3 billion Russian bailout bond maturing in December.

Kiev is also seeking to restructure some outstanding obligations issued before February 2014, including sovereign external debt, sovereign-guaranteed external debt and debt of state banks Ukreximbank and Oschadbank, as well as the city of Kiev and the state railway operator.

Talks with the country's creditors must conclude in May, before the first IMF performance review under the bailout program. IMF officials said this week that the fund had a "fair amount of leeway" in judging the progress of restructuring talks, hinting at less strict timing requirements.

Battered by the near-yearlong conflict in its industrial east, Ukraine's economy is set to contract 7.5% this year, with inflation hitting 30%, according to central bank estimates. The armed conflict with pro-Russian rebels has taken more than 6,000 lives, according to United Nations estimates, and left hundreds of thousands displaced.

While the fighting with eastern separatists has decreased significantly since a cease-fire was signed in February, both sides warn of the threat of a re-escalation. Though if the Ukraine conflict does remain contained, the government expects the economy to resume growing in 2016.

Write to Chiara Albanese at [e-mail]

Access Investor Kit for Franklin Resources, Inc.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US3546131018

Access Investor Kit for Standard Bank Group Ltd.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US8531182066

Access Investor Kit for Standard Bank Group Ltd.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=ZAE000109815