NEW YORK, March 5 - Boutique investment firm Rothschild has invited investors to organize into a Ukraine creditor group ahead of a sovereign debt restructuring, sources directly familiar with the situation told Reuters.

Ukraine's eastern regions of Donetsk and Luhansk, where much of its coal mining and steel making industry is based, is where government forces are battling pro-Russian separatists, putting the nation at risk of bankruptcy.

Last month, International Monetary Fund chief Christine Lagarde said Ukraine would receive about $40 billion in total funding over the next four years, nearly half from the IMF. Ukraine's finance ministry has said the package would include up to $15 billion from debt talks with creditors, which are expected to start next month.

"We hold Ukraine, and Rothschild asked if we wanted to join them in a creditor group. We declined," said one U.S.-based portfolio manager who requested anonymity given the fluid nature of the situation. "This is going to be a really tough negotiation. How do you do a proper debt sustainability analysis when the country is still at war?"

The Rothschild banker who sent the invitation did not respond to a request for comment.

Ukraine's 2017 Eurobond, carries a 9.25 percent coupon. It last traded at 46.5 cents on the dollar, up 1.5 cents, on Thursday, yielding 51.49 percent, according to TradeWeb.

"There are basically 10-15 (private) investors" that need to organize, said a second source familiar with the matter who characterized Rothschild's efforts as "exploratory." If a group representing more than 25 percent of the debt organize, they could block a deal.

U.S. mutual fund firm Franklin Templeton is the largest owner of Ukrainian sovereign debt, holding between 25 to 30 percent of the par value outstanding on nearly every series of government bonds, according to Thomson Reuters eMAXX database, making them the key player in any talks.

Franklin Templeton was not immediately available to comment.

"But Franklin isn't talking with anyone," said a third source who holds Ukrainian debt. "Other bondholders are talking, so the question is will they play ball or try to strong-arm the rest of us," the investor said, requesting anonymity because of the delicate stage of the talks.

Complicating matters is the more than 40 percent decline in the value of Ukraine's currency, the hryvnia, which could make the restructuring more painful depending on how it is organized.

Ukraine's Ministry of Finance hired Lazard to advise on the debt restructuring. (rt/ez)