Ukraine takes first step toward debt payment freeze

Ukraine’s cash-starved government took the first step Tuesday toward freezing the payment of billions of dollars in sovereign and state-backed debt owed to some of the world’s most powerful creditors.

The war-torn country is trying to reach an agreement by next month that would save it $15.3 billion (13.7 billion euros) over the coming four years and avoid a potentially devastating default.

A successful restructuring deal would guarantee the release of the next instalment of a $17.5-billion International Monetary Fund loan that forms the core of a global $40-billion rescue for the westward-leaning ex-Soviet state.

Ukraine’s government said in a statement that it was asking parliament to approve a law granting the cabinet “the right, if necessary, to stop payments to foreign debt holders.”

“In case of an attack by unscrupulous creditors on Ukraine, this moratorium will protect state assets and the state sector.”

Ukraine’s debt is largely comprised of $17 billion in bonds.

About $10 billion of those are owed by a group of five private creditors, led in acrimonious negotiations with Kiev by the Franklin Templeton US investment house.

Inconclusive talks and a fast-approaching deadline prompted Ukraine’s government last week to admit that it was growing “concerned about the approach taken by the creditors”.

The Franklin Templeton-led group is reportedly balking at the idea of accepting either a lower yield on its coupon payments or an extension of the maturity date.

But the bond-holders appear to be especially upset by Kiev’s plans to require creditors to accept a “haircut” that would markedly reduce the value of the bonds themselves.

Sources in the cabinet said they expected lawmakers to swiftly approve the payments moratorium request.

The law does not cover the debt held by two state banks and one government-owned company that are conducting separate negotiations.