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Ukraine's creditors balking at 'haircut'
Journal Staff Report

KIEV, May 12 - Ukraine and its bondholders appeared at loggerheads on Tuesday over debt restructuring plans after the creditor group repeated objections to any writedown on the principal owed, Reuters reported.

Kiev accused them of being unwilling to negotiate in good faith.

Ukraine, which is nearly bankrupt and beset by a separatist war in the east, has set itself a June deadline to get a deal in place with creditors over around $23 billion worth of debt earmarked for restructuring.

But progress in the talks has been slow, with little movement from either the creditors or the government.

The finance ministry, which wants restructuring to involve a "haircut" or writedown in the bonds' principal and coupons, criticized a creditors' committee for refusing to consider a cut to the face value of the bonds.

"The committee, in its public statements, focuses exclusively on the liquidity aspect (of the debt operation), and refuses to acknowledge the debt sustainability objective," the ministry said in an unusually sharply worded statement.

It also accused the group of falling short on "transparency, responsiveness and good faith" by refusing to reveal its full membership and communicating "unconstructively" through the media.

Earlier, the group said it had submitted new detailed proposals to restructure Kiev's debt, but the plan still rejects any haircut, according to a source familiar with the talks.

The ad-hoc creditor committee, which includes investment firm Franklin Templeton and represents investors holding bonds worth about $10 billion, did not give details of the plan it had put forward.

"This is a compromise that balances the stated debt reduction interests of Ukraine and one of the investors' objectives of avoiding a principal reduction," it said in an emailed statement, adding it had not seen "substantive engagement" by Kiev or its advisers on its initial plans delivered four weeks ago.

The divisions emerged as an IMF mission arrived in Kiev to review progress with conditions of its $17.5 billion four-year loan. It has repeatedly stressed it wants a restructuring deal to be agreed before it concludes its review, which is slated to go to the IMF board in June.

"It is rather unfortunate and maybe surprising that this is taking place in public ... The fact that they are now coming out in public is definitely indicating that they are not seeing the progress that they wanted," Jakob Christensen, senior economist at Exotix said.

"Both sides have to realise they can't play too much hardball ... Arguably you can play poker for a while, see who blinks first but there has to be some blinking. At the moment their positions are so far apart it's pretty scary," said a fund manager who holds the bond.

A second tranche of about $2.5 billion hinges on the outcome of the IMF mission's visit. Ukraine sorely needs the cash to shore up foreign currency reserves. (rt/ez)




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