IMF confirms meeting with Ukraine creditors, does not rule out moratorium

IMF confirms meeting with Ukraine creditors, does not rule out moratorium

IMF confirms meeting with Ukraine creditors, does not rule out moratorium

Ukrainian Finance Minister Natalie Jaresko confirmed that the IMF will attend the meeting that Ukraine will hold with its creditors’ committee on June 30 in Washington, the Interfax-Ukraine news agency reported on June 25. Jaresko also told journalists that there is no IMF decision that treats the USD 3 bln Ukrainian Eurobond, purchased by the Russian State Welfare Fund, as state debt. She confirmed a theoretical possibility of Ukraine announcing a moratorium on debt repayment.

Gerry Rice, director of the IMF communications department, did not comment much on the status of the “Russian” bond at his June 25 press briefing, merely stating that “it is not an issue right now” for the IMF and that “different views have been expressed”. Earlier, Bloomberg reported that its status may be considered by the IMF board.

Rice also confirmed the intention of the IMF to be present at the June 30 meeting and did not deny that the IMF’s encouragement towards a debt moratorium is intended for Ukraine to take a hard line in negotiations with creditors. “We support the ongoing discussions on the debt operation … and that is critical for the Fund’s supported program,” he said.

Alexander Paraschiy: The scheduled trilateral meeting in Washington is very likely to be the deciding moment on the Ukrainian government’s debt operation. We expect the creditors will try to persuade the IMF that Ukraine cannot qualify for the IMF’s “lending into arrears” policy, meaning that the IMF cannot continue to cooperate with Ukraine if it announces a moratorium on private debt repayment. For instance, the creditors might insist that the Ukrainian government is not “pursuing appropriate policies and making a good faith effort to reach a collaborative agreement with its creditors,” which is a necessary condition to qualify for the policy. The IMF’s role at the meeting will be to show strong support for all of Ukraine’s efforts to reach the deal, we believe. We have no doubt on the IMF’s support, as we consider the Ukrainian government to have acted at all times in strict accordance to IMF instructions. That said, we believe the creditors will be aware of a high possibility of the moratorium being imposed and, therefore, Ukraine will have no need to introduce it.

The status of the “Russian” USD 3 bln bond remains one of the key uncertainties in Ukraine’s debt operation. In our view, it is very unlikely that the IMF board will recognize this bond as state debt. Firstly, the board has already implicitly recognized this debt as private by allowing it to be included in the debt operation (based on the Extended Funds Facility documents signed in March 2015) and it’s unlikely to change its position. Secondly, the board should clearly understand that by changing its position, it will undermine the entire debt operation process, so that even its first and the easiest target (the prolongation of the maturity of the USD 15.2 bln debt, including the USD 3.0 “Russian” bond) will become impossible.

All in all, we see a high chance right now that the deal between the debt holders and the Ukrainian government will be reached in the beginning of July, with the deal’s parameters to be closer to the initial position of the government.

Concorde Capital

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