Ukraine’s biggest creditor has formed a bloc and hired advisers to prepare for tough talks with Kiev, after the stricken country set out proposals last week to restructure its $17bn international debt.
According to an insider, Blackstone’s advisory arm has been hired to advise the group, which controls about 50 per cent of the country’s international bonds and therefore has the power to make or break the restructuring.
The bondholder bloc is led by asset manager Franklin Templeton, which is by some distance Ukraine’s single biggest creditor having snapped up about $7bn of Kiev’s debts, according to another insider, most of it before the country’s revolution and subsequent crisis.
Blackstone represented Greece’s creditors in 2012, and will once again square up to Lazard, the investment bank that advised Athens and now acts for Ukraine’s government.
The restructuring is part of a new $40bn rescue of Kiev, led by the International Monetary Fund. A previous $17bn bailout programme unravelled after Russia annexed the Crimea and fomented a separatist civil war in eastern Ukraine, ravaging the economy.
Finance minister Natalie Jaresko last week held a conference call with creditors setting out the government’s position. She said Kiev was looking for about $15bn of debt relief and warned that this could include principal reductions on the face value of its bonds, in addition to lower interest payments and extended repayment schedules.
Negotiations are likely to be combative. A person close to the talks said the bondholder group was unwilling to accept outright haircuts and believed the targeted debt relief was too high.
Russia will be another big hurdle. The country is owed $3bn by Ukraine through a bond issued as part of a bailout for the pro-Moscow government that was ousted last year. Russia has indicated that it is unwilling to restructure the debt.
Ms Jaresko stressed in last week’s conference call that there would be no special treatment for any creditors, including Russia. “We invite the holders of the Russian bonds as well as all of our other eurobonds to participate in this process on the basis of transparency, good faith and inter-creditor equity,” she said.
Russia could choose to hold out and refuse to restructure its bond. That would force Ukraine either to seek a deeper haircut on the other creditors to repay Moscow in full or risk protracted litigation at the same time as it tries to restore and reform its war-battered economy.
The bondholder bloc has already started to explore options in case the Russian government proves unwilling to restructure its debts. The IMF highlighted this as a big risk to the success of its new programme.
“Creditors may balk at the terms being offered in the debt operation and holdouts may try to free ride,” an IMF report said. “The negotiations may be protracted, particularly as some creditors have large positions in specific bond issues.”
The restructuring mandate is a fillip to Blackstone Advisory Partners, which is being spun out of the US investment firm alongside several other advisory arms and merged into PJT Partners. It will be listed in New York soon. Weil Gotshal is the bondholders’ law firm, while White & Case represents Ukraine.
Natalie Jaresko: an uncompromising mission
As tough Ukraine debt restructuring talks kicked off this weekend, creditors stretching from Franklin Templeton’s headquarters in California to Moscow are set to square off with Kiev’s atypical finance minister who is on an uncompromising mission to fix the country’s economy and finances, writes Roman Olearchyk in Kiev.
Natalie Jaresko, a Chicago-born former US state department official and investment fund manager with Ukrainian heritage, was one of a handful of foreigners brought into Kiev’s government in December. The technocrat appointments by war-torn and recession-battered Ukraine were intended to jump-start reforms, tackle widespread corruption and avert default.
The highest-level appointee, the 49-year-old graduate of Harvard University’s Kennedy School of Government, has introduced unpopular austerity measures, held bailout talks with the International Monetary Fund and begun negotiations with creditors to fill a $15bn financing gap.
Formerly an economic section chief at the US embassy in Kiev, Ms Jaresko has spent much of the past 20 years in Ukraine. But she stands out from the country’s former finance ministers.
Most recently head of Horizon Capital, a private equity firm that invested in mid-cap Ukrainian companies, she comes to government with an inside view of the ailing economy and what needs to be done to mend it. Ms Jaresko was granted Ukrainian citizenship on accepting the finance minister’s post, although it is unclear whether she has relinquished her US citizenship. She has one year to do so under Ukrainian law.
A native command of English and inside understanding of global markets will help her negotiate with international creditors.
Initiating talks late on Friday through a webcast, Ms Jaresko said debt operations “will probably involve a combination of maturity extensions, coupon reductions and principle reductions”.
Claiming to be “flexible” on the “proportions”, she insisted that final arrangements needed to ensure Ukraine met macroeconomic targets that were “written in stone”.
Her Russian language skills are not as crisp as her Ukrainian. But it is hard to see how this could make talks over a $3bn bond with a country that Kiev accuses of waging an undeclared war any tougher.
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