Ukrainian Debt Bomb Ticks Closer to Sovereign Default

With each passing day the Ukrainian debt bomb ticks closer to a sovereign default, which can now only be defused by Western creditors.

With the economy expected to contract by 8% this year, and Western bailouts becoming its only salvation, the country is going through a difficult phase.

Standard & Poor’s cut Ukraine’s long term foreign debt rating to CC from CCC-.  The rating C, is used when a debtor is in the process of filing for bankruptcy protection.

The foreign investors holding $10 billion of Ukrainian bonds “joined forces to develop a restructuring plan” for the country’s debt. The plan does not include a decrease in debt, but interest payments on the other hand are impossible to manage at such rates. Ukraine’s immediate future is now firmly in the hands of Western bond funds and the IMF, Forbes reports.

“Nobody knows what is happening in Ukraine,” says Ukrainian lawyer Marlen Kurzkhov, a partner with Gusrae Kaplan in New York.  Kurzkhov has been working with high net worth Ukrainians trying to get their money out of the country.  “All I know for sure is that whatever money the IMF gives to them, the government will steal some of it, at least that’s the word on the street. A lot of Ukrainian businessmen are hoping things will blow over, or are dealing with authorities on the ground,” says Kurzkhov.

The IMF approved the provision of $17.5 billion to Ukraine in February as part of a four-year extension that replaced the original deal made in 2014. The IMF program targets a total of $40 billion in loans, nearly seven times what the Central Bank of Ukraine has in reserves.

It is planned that this year Ukraine will be granted $10 billion, but this may not happen if Kiev does not pay the debt of $3 billion to Moscow, the due date of which is set for December.