After months of stalemate, Ukraine’s international private bondholders have proposed a 5 percent debt relief for Kiev as concerns over the country’s economy grow. Last month Ukraine asked the creditors for a 40-percent cut.
The proposal was made this week by Ukraine’s largest creditor Franklin Templeton Investments which holds about $8.9 billion in bonds, the Wall Street Journal cited two people close to the negotiations Thursday. It was agreed by other members from the committee of the country’s major bondholders.
“As long-term investors in Ukraine, the committee has led efforts to ensure a rapid, mutually acceptable and sustainable debt restructuring, while also retaining the country’s vital access to capital markets,” one person said.
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Ukraine recently indicated it is ready to agree to a less severe ‘haircut’ than it has previously asked for, according to the second person familiar with the talks. The country had asked for a 40 percent haircut worth about $15 billion.
“The creditors have bitten the bullet,” Jakob Christensen, an analyst at Exotix Partners in London told Bloomberg. “It’s give and take from here, so a compromise is probably the most realistic. I don’t think the IMF and the government will be satisfied with a small principal haircut. They will need more like 25 percent.”
Kiev has been trying to persuade foreign private creditors to make concessions as the country has to meet the conditions for the next $2.5 billion tranche of the IMF’s $17.5 billion loan. The fund will release money only if it’s satisfied with the economy, budget and monetary reforms in the country. The IMF board of directors is holding a meeting to discuss theissue on July 31.
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The country’s GDP is expected to shrink 9 percent this year, with annual inflation expected to jump to 46 percent, the IMF warned. The debt will hit 95 percent of GDP this year, according to the National Bank of Ukraine.
Ukraine avoided a technical default earlier this month by making a $120million coupon payment on its Eurobonds. The next key bond payment of $500 million is due in September.
Payments on foreign debt should amount to $257 million this month. $98 million will be payments on official loans of $159 million from international financial institutions.