Ukraine Wins Debt Relief in West as Fighting Flares in the East

27 Aug 2015 | Author: | No comments yet »

Ukraine Secures Debt-Relief Deal, Finance Ministry Says.

Ukraine agreed to a restructuring deal with creditors after five months of talks, giving President Petro Poroshenko some breathing room as he seeks to avert default and revive an economy decimated by a war with separatists backed by Russia.Ukraine’s government secured a vital debt-relief deal, the country’s finance ministry said Thursday, a key step toward unlocking billions of dollars in emergency financing after months of deadlocked creditor negotiations threatened to derail the fragile international bailout program. Finance Minister Natalie Jaresko reached an accord with a Franklin Templeton-led creditor committee that includes a 20 percent writedown to the face value of about $18 billion of Eurobonds, the first of which matures in less than a month.

The agreement also pushes back redemption dates by four years and sets interest at 7.75 percent on all maturities, according to an e-mailed statement from the Finance Ministry. As part of the deal, the restructuring offers a sweetener to both sides: Kiev won’t have to pay borrowing costs if growth is below 3%, but will boost payments if the economy expands at a faster rate. Bonds surged the most on record. “It’s been a very difficult five months,” said Jaresko, a Chicago native who was given Ukrainian citizenship when Poroshenko appointed her finance minister last December. “I’m confident that the markets will receive this quite well,” she said in an interview on Wednesday. Poroshenko is seeking to meet the conditions of emergency assistance from the International Monetary Fund, which says debt restructuring should save Ukraine $15.3 billion through 2018, while trying to end the worst recession anywhere in Europe, the Middle East or Africa.

The 49-year-old Ukrainian leader, elected last year after becoming a billionaire in the chocolate business, was racing to reach a comprehensive accord with creditors before a $500 million bond comes due next month. But it marks a milestone in the government’s efforts to restore its conflict-ravage economy back to health and is a major success for the pro-Western government as it seeks to push through a series of politically tough economic overhauls.

The country has another $4 billion of payments scheduled by year’s end, including to Russia, which reiterated after the deal was announced that it won’t take part in the restructuring. Franklin Templeton, which owns about $7 billion of Ukrainian bonds, were joined in the talks by fellow creditors BTG Pactual Europe LLP, TCW Investment Management Co. and T. Vladimir Putin’s government bought $3 billion of two-year, 5 percent bonds from Ukraine to support his longtime ally, then-President Viktor Yanukovych, in December 2013. Protests in the capital Kiev turned deadly two months later, forcing Yanukovych to flee to Russia and Putin to end what would have been a $15 billion aid package for the country of 45 million people. “I’m offering Russia a restructuring opportunity that is the same as everyone else’s,” Jaresko said in the interview. “I’m hopeful that they will participate in this.

It’s the best way for us to all move forward together.” The IMF then stepped in with a $17.5 billion bailout pledge, $3.4 billion of which Ukrainian officials say they expect to get in the next four months. The government has already received about $6.7 billion, helping the central bank almost double its reserves to $10.4 billion, though that’s still less than half of what they were before Putin annexed Crimea in March 2014, sparking the separatist conflict. “Risks to the outlook remain exceptionally high,” mainly because of the continuing conflict with pro-Russian rebels, the IMF said in a report this month. On-again-off-again fighting has destroyed large swathes of the Donetsk and Luhansk regions bordering Russia, killing at least 6,700 people in Ukraine’s industrial heartland and displacing a million more.

Ukraine and the pro-Russian separatists its army has been battling for more than a year said Wednesday that they’d seek a “total cease-fire” starting Sept. 1. Talks involving those nations and Russia, which denies fueling conflict, may take place during the United Nations’ General Assembly next month in New York, according to the Kremlin. The IMF, which was created during World War II to stabilize exchange rates and promote global trade, wants Ukraine to cut its overall debt to less than 71 percent of gross domestic product by 2020 from an estimated 94 percent this year, and to reduce the gross financing needs of its budget to 10 percent of GDP from about 20 percent now. The Washington-based lender is also pressing Poroshenko to revamp the country’s pension system and implement an aggressive anti-corruption program, among other things.

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