August 24, 2015 / 3:57 PM / 4 years ago

Haircut of 20 percent seen in Ukraine debt deal - WSJ

KIEV, Aug 24 (Reuters) - Ukraine and a group of its largest creditors are close to agreeing a restructuring deal that will include a 20-percent writedown on the principal of about $19 billion of debt, the Wall Street Journal (WSJ) quoted sources as saying on Monday.

Talks have dragged on for more than five months, snared on deliberations over whether and how much of a writedown, or haircut, there should be, but a preliminary agreement could be announced some time this week, according to the WSJ sources.

The Ukrainian Finance Ministry declined to comment on the details of the report and the numbers could not be immediately confirmed with bondholders. “No deal has been finalised and all options remain open,” a ministry representative said.

However, markets have speculated for some time that both sides could settle for a 20-percent writedown - half of what Ukraine had originally demanded.

A source familiar with the talks told Reuters: “The committee is keen to facilitate a deal as they recognise that Ukraine faces very special circumstances. Their position is clear: they have never believed a haircut is necessary but despite this, in order to get the deal done, they have made a very significant concession.”

A 20-percent writedown is in line with expectations and means the two sides are meeting halfway, Bank of America/Merrill Lynch fixed income strategist Vadim Khramov said.

“Twenty percent is the consensus level ... but it doesn’t really say much about bond prices, because a lot depends on other factors, like coupons and maturity extensions and other things like GDP warrants,” he said, referring to a mechanism whereby value can change depending on economic growth rates.

Ukraine has warned it would halt debt payments if an agreement is not reached soon, but on Monday it paid a $60 million coupon due on a 2021 Eurobond, a market source told Reuters.

Bond prices fell by about one cent across the curve and most issues are trading around 54-55 cents in the dollar. (Reporting by Alessandra Prentice in KIEV and Sujata Rao in LONDON; Additional reporting by Karin Strohecker; Editing by Louise Ireland)

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