The problem of Ukrainian debt: Europe in between frenzy and panic

Ukrainian Finance Ministry had in fact acknowledged the inability of Kiev to settle its debts. European central banks are infuriated. Whereas private banks are in panic: it was them who had been the main buyers of Ukrainian Eurobonds.
Europe cannot come to its senses, taken aback by Kiev’s impudence. According to media reports, European creditors “got furious” when they heard “the insistent statement” of Minister Jaresko that they would have to write off a part of Ukrainian debt. Madam Minister called on them to “forgive” Kiev more than 15 bln USD! Notably, she also asked the creditors to hurry up with making their decision, as otherwise salvation of Kiev will cost the West a much bigger sum than   40 bln USD. The IMF, Brussels and Washington promised to grant this sum.

And private companies will have to deal with the problem of restructuring the debt. Thing is, that once small European banks were buying Ukrainian bonds, and for them writing off billions of dollars for Kiev means gross financial losses. Nevertheless, it seems, they will be forced to forgive Ukraine’s debts, if not by their own governments, then, the circumstances. For example, catastrophic situation of Ukreksimbank has got wide media coverage. It is one of the biggest financial structures of the country. Right now it is on the verge of bankruptcy. The only way out is to urge the holders of Eurobonds for the sum of 750 bln USD to prolong the term of redemption. These terms are expiring in the end of April. Bank cannot settle the obligations, and the government of Ukraine is unable to help it with the loans from the exhausted treasury. And this bank of not the only “troubled” company with the state share of completely state-owned.

There are altogether 29 companies in the list of those who need the prolongation of the terms of settlement or writing off of the debts.  Kiev is going to bone up on the issue of restructuring and writing off of the debt. With this aim a Committee of foreign shareholders, who are in possession of a half of the country’s external debt, was created. Among others, American investment fund Franklin Templeton was included into this Committee. The Committee will be able to block the offers in regard to the bonds belonging to its members. However, this is not an easy procedure.

Apart from private credit users, also states own debt securities of the country. For example, Moscow also has the right to veto every decision on restructuration, in addition to the bonds to the value of 3 bln USD. And this, perhaps, is the biggest pain in the ass for Jaresko’s ministry, because Kiev, the EU or the USA cannot pressurize Moscow. And on the part of the Eastern neighbor appeals are heard to settle the debts in time. This is the key to the mystery of Kiev’s impudent stance in regard to the creditors. Ukraine realizes that Russia can veto their decision on writing off the debts – that is why Kiev did not make any official appeals to Moscow. Nevertheless in Ukrainian plans and in the credit program of the IMF no funds are meant for the service of the debt to Russia! This implies the past-due indebtedness. Thus, Kiev needs to manage to restructure at least a part of the debt by December, and most desirably – by May, because later the hazards will grow, and it will be more difficult to pressure the private holders, even with Obama’s help. Besides, the situation can unnerve the IMF. Then Kiev will not see either new tranches or restructuring of the debt.