3 de septiembre de 2015 / 17:43 / hace 2 años

As with Greece, Ukraine debt swap may not be the last word

* Debt write off, extensions far less than expected

* But generosity to bondholders raises worries

* Some people see parallels with Greece

* Athens seeking yet more relief despite 2012 deal

By Sujata Rao

LONDON, Sept 3 (Reuters) - Bondholders cheering Ukraine’s debt swap face the risk that Kiev will return to the bargaining table within a few years, following the path Greece trod after its 2012 restructuring.

Ukraine’s sovereign bonds have rallied 40 percent to trade up to 75 cents per dollar of face value following the Aug. 27 agreement which wrote off a fifth of the $18 billion principal and lengthened maturities by four years.

Both the writeoff and the repayment extensions were far less than predicted, a pleasant surprise for fund managers who had prepared for bigger losses on their Ukraine bond holdings.

The deal, which aims to cut Ukraine’s debt to 71 percent of annual economic output (GDP) by 2020 from an estimated 100 percent now, was further sweetened by higher interest rates to be paid on the bonds and the promise of additional payouts after 2020, if economic growth hits certain targets..

But given the dire state of Ukraine’s economy and its conflict with pro-Russian rebels in the east, this generosity is making some people uneasy. They see some parallels with Greece, which now wants yet more debt relief, while another defaulter, Argentina, is fighting court battles with a minority of bondholders who refused to accept a restructuring deal.

“This may not be the last chapter in the Ukraine debt saga. As Greece or Argentina show, sometimes restructurings don’t work out,” said Peter Marber, head of emerging debt at Loomis Sayles who has participated in more than 25 sovereign restructurings.

A more aggressive write down or “haircut” would have significantly improved Ukraine’s debt profile, reckons Marber, who does not own the bonds and believes their prices do not reflect the risks.

“The modest 20 percent haircut leaves the lingering spectre of a return to the negotiating table,” he said. “If Ukraine had received a 50 percent haircut, there might be a better investment case to buy.”

Ukraine’s restructuring is modest compared with the 172 billion euros ($191 billion) that Greece defaulted on in 2012. Proportionately, its debt is also nowhere near as dire as Greece‘s, which is equivalent to about 160 percent of GDP.

And unlike Greece, Kiev has made economic reform a priority.

Greece’s creditors swallowed a 54 percent haircut on 206 billion euros’ worth of debt. They also accepted bond maturities being stretched out 10-20 years and interest rate cuts as well.

Yet three years later, Athens says its economy can never recover without more debt relief, having just clinched a third bailout worth 86 billion euros.

Its problems partly stemmed from the fact that debt owed to official creditors - European institutions and the International Monetary Fund - was untouched in 2012, says Jakob Christensen, an Exotix strategist.

That’s so in Ukraine too. Only foreign currency bonds worth $23 billion, including the debt of state-owned enterprises, are affected out of total public sector debt estimated by the IMF in March at $71 billion. Multilateral and bilateral lenders such as the IMF were spared, as were holders of local currency debt .

“The job wasn’t done fully in Greece but that was to do with the official sector. In Ukraine, the job has not been done fully in the private or the official sector, so both may be on the hook (for restructuring) down the road,” Christensen said.

But unlike Greece, which owes money to European bailout funds, Ukraine’s main official creditors are the IMF and World Bank which rarely forgive debt. So if Ukraine returns for another bite, private creditors may be at risk again.

Ukraine officials and creditor committee members were not available for comment. But a source familiar with the talks said the deal was based on IMF parameters. “While it is impossible to predict Ukraine’s economic future, no one sets a deal up to fail,” the person said.

“WIN-WIN”

Ukraine’s Finance Minister Natalia Yaresko has defended the deal as “win-win” and it may yet turn out to be so.

Kiev-based analysts such as Alexander Valchyshen at Investment Capital Ukraine saw the deal as positive, even if it fell below expectations, arguing it was now up to the government to achieve the targets.

The generous deal will undoubtedly smooth Kiev’s return to bond markets and allows the IMF to continue its loan programme.

One alternative, a debt default or moratorium, would have sent bonds plunging, risking luring in distressed debt funds that can pursue a country for decades in international courts, as Argentina has witnessed.

“If I were the authorities, I’d rather have some agreement now with the risk of another restructuring in few years rather than fight for additional debt relief at the risk of not achieving an agreement and declaring a moratorium,” said Claudia Calich, a fund manager at M&G Investments.

Ukraine’s negotiators may have been constrained by the IMF’s debt sustainability analysis (DSA).

That targeted a debt ratio of 71 percent of GDP by 2020, which the IMF deemed attainable by prolonging bond maturities but without a principal haircut, notes Gabriel Sterne, head of global macro at Oxford Economics.

Sterne has been among those predicting a high likelihood of Ukraine coming back for more debt relief. “The DSA talks about flow relief, not stock relief. If that’s the DSA you are working with, how do you demand a big haircut unless you argue the DSA is a flawed metric?” he said.

$1 = 0.9002 euros) (Additional reporting by Marc Jones in London and Natalia Zinets in Kiev; editing by David Stamp)

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