Ukraine intends to finish talks with creditors by late September 2015 – memorandum with IMF

The Ukrainian authorities have acknowledged that the foreign debt restructuring is advancing slower than expected, but said they intend to complete this process by the end of September 2015, according to a memorandum between Ukraine and the International Monetary Fund (IMF) which was updated following the first review under the Extended Fund Facility (EFF) program of the IMF.

"To complement our fiscal efforts and bring debt firmly on a sustainable path towards our target of below 71% of GDP by 2020, we are advancing discussions with creditors on a debt operation, which we aim to complete by late September 2015," the document posted on the Fund's website on Tuesday reads.

The IMF noted that the discussions for the restructuring of Ukraine's sovereign eurobonds and sovereign guaranteed external debt with a creditor committee representing four large private bondholders holding US$8.9 billion (nearly 40% of the debt subject to the operation) have recently intensified.

The Ukrainian authorities have remained current on all debt service obligations falling due, the Fund said. At the same time, they have publicly noted that they cannot let this process drag on indefinitely, as they do not have the resources to repay public debt on its original terms. In this regard, on May 19 the Ukrainian parliament authorized the government to declare a moratorium on payments to holders of sovereign and sovereign-guaranteed debt if negotiations do not make adequate progress.

As reported, Ukraine's Finance Ministry on Tuesday sent a revised proposal on sovereign and sovereign guaranteed debt to the ad hoc creditor committee. The details of the proposals have not been disclosed.

"Given the legal considerations around timely implementation of the proposal, this week will be decisive for the negotiations," the ministry said in a statement.

The ministry called on creditors to attend a meeting at the highest level in London on Thursday.

The restructuring of Ukraine's debts was considered to be part of a program of international assistance for Ukraine, but the negotiations with the creditors did not see any progress from March to the end of June. Kyiv threatened to impose a moratorium on servicing its debts if the holders of its bonds worth about $20 billion did not agree to start negotiations in the near future, in which the Finance Ministry asked for writing off 40% of the principal debt, granting an installment plan on payments, and lower the interest rate.

The creditors argued that, even without the principal debt's reduction, Ukraine could qualify for the debt burden parameters set by the IMF and offered to defer the payments for a long time. The creditors made their last offer on May 9, insisting that it met all of the IMF criteria, as they would enable Ukraine to save $16 billion by not having to return the principle debt until 2019.

The Ukrainian Finance Ministry, however, reasoned that the ad hoc committee's proposal still did not meet the objectives earlier agreed upon with the IMF and also involved the withdrawal of $8 billion from the National Bank of Ukraine's international reserves, which the IMF also objected to. As a concession, Kyiv offered additional 'value recovery instruments' to the creditors in mid-June, payments on which it would make in the event of achieving higher GDP growth than is anticipated now.

The IMF headquarters in Washington on June 30 hosted a meeting between a Ukrainian delegation, members of the ad hoc committee, and IMF officers. In mid-July media reported that the creditors' committee holding negotiations with Ukraine on restructuring its eurobonds, agreed to write off the debt principal, but, according to the latest proposals, it wants to limit it to a mere 5%. Ukrainian Minister of Finance Natalie Jaresko later said that the creditors' offer to write off 5% of the debt principal is undervalued.

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