Ukraine said Thursday it has reached a crucial debt restructuring deal that will see lenders accept a 20-percent write-down and keep global markets open to the cash-strapped ex-Soviet state.
The announcement marks a monumental victory for Finance Minister Natalie Jaresko -- a US-born financial expert whom President Petro Poroshenko plucked from a Kiev investment firm in December and tasked with saving the war-torn country from hurtling into default.
Prime Minister Arseniy Yatsenyuk described the agreement as a blow to "enemy" Russia.
Franklin Templeton and three other financial titans that own nearly half of the $19 billion (16.8 billion euros) in commercial debt under discussion had argued that the east European nation was in strong enough shape to repay what it owed in full.
"I think it's a historic success for Ukraine, I think for emerging markets generally," Jaresko told AFP in an interview conducted shortly before Yatsenyuk made the formal announcement at a televised government meeting.
The painful talks lasted for five months and saw the International Monetary Fund and the United States put immense pressure on bondholders to accept short-term losses in return for keeping Ukraine's pro-Western leaders from being forced into resuming their reliance on Russia.
Ukraine's economy is expected to shrink by nearly 10 percent this year due in part to the loss of key coal and steel mining factories in the pro-Russian separatist east, which saw industrial production plummet by about a fifth over the first six months of the year.
The agreement was followed quickly by the Ukrainian central bank's decision to lower its main interest rate to 27 percent from 30 percent -- a high figure that still signalled expectations of more stable economic times ahead.
"Why is (the deal) important?," said Jaresko in the English-language interview.
"We were already at the point as a country where the commercial creditors said: 'Too risky.' Now the official creditors said: 'Within limits, we will support you.'"
- Major 'haircut' -
The possibility of Ukraine either outright defaulting on its obligations or imposing a payment freeze could have shut Kiev out of global borrowing markets and severely hampered its IMF-led austerity and economic restructuring drive.
The IMF had patched together a $40 billion (35.5 billion euro) rescue package aimed at stabilising the country's financial footing after more than two decades of corruption saw its economy shrink from levels seen in Soviet times.
But that deal required a compromise with bondholders that could save the nation of about 40 million people $15.3 billion over the next four years.
The terms announced by Kiev will see the lenders take a 20-percent "haircut" to the face value of their bonds but see slightly higher interest payments in return.
Ukraine agreed to raise its coupon rates to 7.75 percent from 7.2 percent while the lenders accepted slightly longer repayment terms.
The compromise also keeps Ukraine from being forced into making any principal payments should its real annual growth rate stay below three percent.
"The deal avoids default (and the use of a moratorium) on debt payments," said the government statement.
"Ukraine will continue servicing its debt obligations in accordance with their terms, with the exception of a temporary technical suspension of payments of the Eurobonds maturing in September and October," it added.
- Russia payment worries -
Thursday's agreement saves Ukraine $11.5 billion and is still short of the target set by the IMF.
A separate set of restructuring deals with other private lenders that are expected in the coming days will fill a part of the remaining gap.
But still hanging unresolved and increasingly worrying is the future of a $3.0 Eurobond that Russian-backed ex-president Viktor Yanukovych issued months before his ouster by pro-European street protesters and lawmakers.
The payment must be made to Russia -- accused by Kiev and the West of orchestrating the 16-month eastern uprising in reprisal for its western neighbour's pro-European drive -- by December 20 or see Kiev sued by Moscow.
Ukraine believes the sum should be treated as a commercial loan that should be restructured along the lines of Thursday's agreement.
But Russia calls the $3-billion a government-to-government loan whose repayment is mandated by international law.
"Ukraine officially announces that Russia under no circumstances will receive terms better than those received by the other creditors," Yatsenyuk told the Ukrainian cabinet meeting.
Ukraine said Thursday it has reached a crucial debt restructuring deal that will see lenders accept a 20-percent write-down and keep global markets open to the cash-strapped ex-Soviet state.
The announcement marks a monumental victory for Finance Minister Natalie Jaresko — a US-born financial expert whom President Petro Poroshenko plucked from a Kiev investment firm in December and tasked with saving the war-torn country from hurtling into default.
Prime Minister Arseniy Yatsenyuk described the agreement as a blow to “enemy” Russia.
Franklin Templeton and three other financial titans that own nearly half of the $19 billion (16.8 billion euros) in commercial debt under discussion had argued that the east European nation was in strong enough shape to repay what it owed in full.
“I think it’s a historic success for Ukraine, I think for emerging markets generally,” Jaresko told AFP in an interview conducted shortly before Yatsenyuk made the formal announcement at a televised government meeting.
The painful talks lasted for five months and saw the International Monetary Fund and the United States put immense pressure on bondholders to accept short-term losses in return for keeping Ukraine’s pro-Western leaders from being forced into resuming their reliance on Russia.
Ukraine’s economy is expected to shrink by nearly 10 percent this year due in part to the loss of key coal and steel mining factories in the pro-Russian separatist east, which saw industrial production plummet by about a fifth over the first six months of the year.
The agreement was followed quickly by the Ukrainian central bank’s decision to lower its main interest rate to 27 percent from 30 percent — a high figure that still signalled expectations of more stable economic times ahead.
“Why is (the deal) important?,” said Jaresko in the English-language interview.
“We were already at the point as a country where the commercial creditors said: ‘Too risky.’ Now the official creditors said: ‘Within limits, we will support you.'”
– Major ‘haircut’ –
The possibility of Ukraine either outright defaulting on its obligations or imposing a payment freeze could have shut Kiev out of global borrowing markets and severely hampered its IMF-led austerity and economic restructuring drive.
The IMF had patched together a $40 billion (35.5 billion euro) rescue package aimed at stabilising the country’s financial footing after more than two decades of corruption saw its economy shrink from levels seen in Soviet times.
But that deal required a compromise with bondholders that could save the nation of about 40 million people $15.3 billion over the next four years.
The terms announced by Kiev will see the lenders take a 20-percent “haircut” to the face value of their bonds but see slightly higher interest payments in return.
Ukraine agreed to raise its coupon rates to 7.75 percent from 7.2 percent while the lenders accepted slightly longer repayment terms.
The compromise also keeps Ukraine from being forced into making any principal payments should its real annual growth rate stay below three percent.
“The deal avoids default (and the use of a moratorium) on debt payments,” said the government statement.
“Ukraine will continue servicing its debt obligations in accordance with their terms, with the exception of a temporary technical suspension of payments of the Eurobonds maturing in September and October,” it added.
– Russia payment worries –
Thursday’s agreement saves Ukraine $11.5 billion and is still short of the target set by the IMF.
A separate set of restructuring deals with other private lenders that are expected in the coming days will fill a part of the remaining gap.
But still hanging unresolved and increasingly worrying is the future of a $3.0 Eurobond that Russian-backed ex-president Viktor Yanukovych issued months before his ouster by pro-European street protesters and lawmakers.
The payment must be made to Russia — accused by Kiev and the West of orchestrating the 16-month eastern uprising in reprisal for its western neighbour’s pro-European drive — by December 20 or see Kiev sued by Moscow.
Ukraine believes the sum should be treated as a commercial loan that should be restructured along the lines of Thursday’s agreement.
But Russia calls the $3-billion a government-to-government loan whose repayment is mandated by international law.
“Ukraine officially announces that Russia under no circumstances will receive terms better than those received by the other creditors,” Yatsenyuk told the Ukrainian cabinet meeting.
