Martin Wolf was fuming about Russia on Wednesday — incensed specifically about its stance towards Ukraine’s attempted debt restructuring. He really doesn’t like the fact that Russia’s refusal to join August’s $18bn deal with private bond holders will block Ukraine’s access to IMF money, promising to collapse the country’s economy.
Along the way, Wolf notes that there’s a solution on the table here, albeit one that Russia is unlikely to accept. It comes from Adam Lerrick of the American Enterprise Institute — a man with some form in coming up with elegant solutions amid sovereign debt crises. (See Iceland, Greece and also Argentina.)
Here’s Lerrick’s detail on Ukraine, along with a table for Putin and pals… Read more
All those San Francisco meetings paid off.
Franklin Templeton and other private creditors will agree to swallow a writedown on their Ukrainian bonds. Cutting a fifth off bond principal, it’s much less than many expected. Bond prices were rallying hard at pixel time.
Then there is the issue of Moscow. Since Russia’s said no about restructuring its own Ukrainian bond. Read more
She’s a little busy with Greece at the moment. But just under two weeks after Christine Lagarde read the IMF equivalent of the riot act to Ukraine’s biggest bondholders over its debt restructuring…
They’ve responded. See below for the full open letter from Ukraine’s creditor committee on Wednesday: Read more
It’s jargon-tastic and it’s come out of Washington DC late on a Friday, but do read this IMF statement on Ukraine’s debt restructuring. As Barnejek tweeted, it’s financial history in the making… Read more
On May 28, Ukraine will pay $88m in interest on its $2.25bn bond due 2022.
On June 20, it will also pay a $75m coupon on that $3bn bond owed to Russia.
Well, we say ‘will.’
This might get in the way first: Read more
Back in April, five leading owners of Ukrainian bonds formed a committee to negotiate a restructuring with their debtor – and avoid losing money on their approximately $10bn principal in the process.
Now count the names in this release on Monday… Read more
The English-law bonds in Ukraine’s debt restructuring are a bit more local-law than bondholders might realise. How can Ukraine use that to get a deal? Here’s an interesting idea… Read more
There have been a few doubts lately about whether Ukraine was going to include that $3bn Russian bond, issued in 2013 and maturing this year, in its debt renegotiation with private creditors.
Well, over to a resolution by the embattled country’s Cabinet of Ministers… Read more
Update: Seems we were right to regard this as curious…
Late on Thursday the IMF walked back on the idea the Russian bond is official debt, per Reuters: Read more
The Russia problem aside, Ukraine’s other big task in its $15bn debt restructuring will simply be to convince private bondholders that it’s a deal worth taking.
One way to do that is for bondholders to realise they are dealing with a government burdened with the costs of war and as it happens, increasingly absorbed in an intense lustration campaign.
But some of them (quite possibly one that lives in San Mateo, CA) could have holdings large enough to block a bondholder vote. So, even if Natalie Jaresko, the Ukrainian finance minister, does like to quote Margaret Thatcher about there being no alternative… the new bond terms will need to justify taking a massive haircut compared to holding out for full payment.
Another way to do it? Note how ripe for abuse the old bond terms are.
When Lee Buchheit, Ignacio Tirado and Mitu Gulati were looking deep within the innards of Cypriot government bonds just over two years ago — shortly before the climax of the island’s debt crisis — they found something exciting. Read more
All it took was 11 days — and one schtum Kremlin spokesman — to make people wonder recently just how strong and secure a ruler Vladimir Putin really is.
They might want to look inside his Ukrainian bonds next. Read more
This week’s $40bn IMF programme announced for Ukraine will include some restructuring of its debt. Gabriel Sterne, head of global macro research at Oxford Economics, points out that it comes at an interesting time for the fund’s policy on restructuring.
The IMF’s proposals to change its policy on sovereign debt reprofiling have divided opinion, with FT Alphaville providing a debating platform between supporters (for example here and here) and sceptics including myself (for example here and here).
The proposals are motivated by the objective of providing a fund programme breathing space to work when it is unclear if debt is unsustainable. Read more
Ukraine will probably end this year with public debts over two-thirds the size of its economy. We won’t know the exact figure until March when official statistics come out, nor if those statistics will be able to count the GDP of the separatist east.
But it is not looking good. We thought this rated a reminder.
Because the President of Russia certainly hasn’t forgotten about it — or the unusual clause inserted into the language of a $3bn bond Ukraine owes to his government: Read more
. . .Which is an announcement by the Ukrainian Security Service on Thursday that it has opened an criminal investigation into just how Ukraine managed to sell $3bn of some curious bonds to Russia in the last months of Viktor Yanukovych’s government. Read more
Sam Jones (formerly of this parish) writes in the FT about how the conflict in Ukraine has revealed the capacity for a new type of warfare.
This is one that has “exploded the notion that expansive communications technologies and economic interdependence were fostering a kind of grand bargain.” Against it, the great power arrayed on the other side can do little, despite its considerable conventional might.
Quite so. Take, for example, this story from Bloomberg on Friday… Read more
Ukraine claimed at pixel time to have fired on a number of Russian tanks crossing its borders.
Being invaded by Russia is not very conducive to a country’s GDP. But also, bizarre as it seems if its armour really is aflame in the Donbas, Russia is also the owner of Ukrainian sovereign debt. This has some precarious terms (for the borrower) restricting growth in debt to GDP to below 60 per cent. Read more
Here’s some Tina Fordham while we await developments… Read more
From the US Treasury’s Office of Foreign Assets Control on Wednesday:
The following transactions by U.S. persons or within the United States involving the persons listed below are hereby prohibited: transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity of these persons (listed below), their property, or their interests in property…
Note that wording carefully. “US persons” could extend beyond the US. Meanwhile “new debt of longer than 90 days maturity” could extend beyond US dollar debt.
It does not, however, include US dollar clearing generally, the US Treasury says. Nor, it seems, CDS which references prohibited underlying debt.
Now note whose debt — not all transactions; debt — US banks, US clearing systems, and US investors may be prevented from dealing with accordingly: Read more
Russia says Ukraine hasn’t paid interest due June 20 on that $3bn eurobond.
Ukraine said on Thursday that it had. Read more
How many sovereign debtors get to be both in hock to the Russians, and using the United States’ full faith and credit to borrow fresh money?
Though we suppose Ukraine’s a special case: Read more
The currency devaluation and official borrowing (to help finance a still-wide government deficit) are expected to push public sector debt up to 57 percent of GDP…
– IMF announcement of $17bn loan programme for Ukraine
Although don’t worry — that’s a whole 3 per cent before a unique debt threshold clause conceivably allows the Russian government to convert $3bn of Ukrainian bonds, which it owns, into demand money. Read more
From the National Bank of Ukraine:
15.04.2014 press release
The National Bank has passed the decision to temporarily disconnect 14 banks from the System of Confirming the Agreements in the interbank foreign exchange market. The regulator resorted to this measure given the actions undertaken by these banks in the foreign exchange market that have a destabilizing effect on of the hryvnia exchange rate and create negative expectations about the future hryvnia exchange rate dynamics.
Not much market reaction yet to reports of an “anti-terrorist operation” in Ukraine apart from gold, which had broken through a key resistance level before Russia said that its neighbour is close to civil war. Read more
The prospect of selling any sovereign territory to resolve disputes may seem like a taboo — especially so when it comes to the conflicted territory of Crimea. However, Joseph Blocher and Mitu Gulati, both law professors at Duke University, argue that such a “market” should in future be considered in public international law.
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At least Nomura acknowledge the absurdity… anyway, all Ukrainian roads lead to political uncertainty.
This guest post on the Ukraine crisis is from Jorge Mariscal and Alejo Czerwonko, emerging markets chief investment officer and emerging markets economist, respectively, at UBS Wealth Management.
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There’s a familiar name on the latest Specially Designated Nationals List in the US sanctions against Russia…
TIMCHENKO, Gennady (a.k.a. TIMCHENKO, Gennadiy Nikolayevich; a.k.a. TIMCHENKO, Gennady Nikolayevich; a.k.a. TIMTCHENKO, Guennadi), Geneva, Switzerland; DOB 09 Nov 1952; POB Leninakan, Armenia; alt. POB Gyumri, Armenia; nationality Finland; alt. nationality Russia; alt. nationality Armenia (individual) [UKRAINE2]…
When your creditor takes some of your territory — can you make that territory take some of your debt? Mitu Gulati, a law professor at Duke University, last wrote for us on Russia’s $3bn Ukrainian bond. With Russia reinforcing its annexation of Crimea, Mitu considers Ukraine’s options with its debt after the secession.
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Or, why investors might be less than sanguine about sanctions against Russia.
We could start with the OFZs.