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As Ukraine Launches A Debt Restructuring, Is Russia About To Become A "Holdout" Activist Investor?

Tyler Durden's picture




 

With Argentina suddenly no longer able to kick the can any longer in its decade long fight with holdout investors, and warning that unless the covenants of the foreign law bonds are stripped in effect making them local-law bonds (and undergoing an event of default for CDS purposes), everyone is focusing on how soon until the sovereign default parade will again resume, following the Greek technical bankruptcy two years ago. Yet the next sovereign restructuring may not come from Argentina first, but from the Ukraine, which as Reuters reports is holding talks with creditors on the restructuring of its foreign debt. Unfortunately for the country, this attempt at a "voluntary" restructuring is coming at the worst possible time.

From Reuters:

Ukraine is holding talks with creditors on restructuring its foreign currency debts, an official from an international finance association said on Thursday following recent meetings with Ukrainian officials.

 

Lubomir Mitov, an economist with the Institute of International Finance, said that while Ukraine's finances were precarious, it was too soon to say whether it would need to change the terms of its debt.

 

Mitov said Ukrainian officials stressed they would avoid forcing any so-called haircuts on bondholders in a restructuring.

Taking a page from the Greek playbook, Ukraine is fixated on making it quite clear that creditors would be, make that should be, unanimous in agreening to a restructuring. Which is clear: as the endless days of Greek bondholder negotiations taught us, the inability to have the vast majority of holders agree on a change in bond terms, i.e., a restructuring, would mean an event of default.

"The Ukrainians authorities made very clear to us that they would consider this only as a really, truly voluntary operation agreed by the bondholders," Mitov told journalists by phone. "A voluntary exchange or maturity extension could be one of the sources for financing."

Basically, the only question is whether the restructuring of insolvent Ukraine which has lost its industrial eastern regions to "separatists" and is no longer capable of servicing its existing debt, takes place during a sovereign default or without one, allowing the country to seamless continue its existence as if it was the country that issued the original bond, under the original conditions (hint: it isn't).

Alas, this attempt to renegotiate its bonds comes at the worst possible time because just this week the US Supreme Court gave a green light to "voluntary" exchange offer holdouts everywhere to demand priority treatment when holding out from to such "enforced" exchange offers as what Argentina did back then... and what Ukraine is trying to do now.

So absent some major "carrot", most likely coming from Uncle Sam, we wouldn't be surprised if Ukraine was unable to find even a simple majority of participants that would agree to the terms of its exchange offer.

Which leads to another question: which will be the fulcrum Ukraine security, and who will be the vulture investors - here the usual suspect Elliott comes to mind - preparing to "hold out" and scuttle the deal, demanding a pound of flesh in exchange for not holding out.

For now the answer is unclear, which is why once the Reuters news hit, Ukraine bonds tumbled:

But what will make the Ukraine restructuring fascinating is if the "activist" bondholder investors, aka vultures, aka holdouts, are not your usual hedge funds, but none other than the Kremlin, which after accumulating a sufficient stake to scuttle any prenegotiated, voluntary transaction can demand virtually anything from Kiev in order to allow the country to make the required adjustments on its bonds to avoid an outright sovereign default.

Because who else can't wait for Putin Capital Management LP?

 

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Thu, 06/19/2014 - 13:58 | 4874534 disabledvet
disabledvet's picture

Ukraine is using armor with infantry formations now.

That's looking less and less like a Civil War and more and more like a real war by the day.

Given Europe's catastrophic economic state it's easy to see large numbers of "technicals" starting to gradually flow into the region. this is some of the most valuable real estate in the world.

Thu, 06/19/2014 - 14:21 | 4874598 Latina Lover
Latina Lover's picture

Of course the Ukrainian government is going into total warfare mode, since they are puppets of the US State Department and CIA, in turn manipulated by  Multinational Oil  and Agricultural companies, further controlled by the NY and London Banksters.

Thu, 06/19/2014 - 14:23 | 4874608 Latina Lover
Latina Lover's picture

Bonds will be just one of many tactics Russia will use to put pressure on Kiev.  Ultimately, the Ukraine will fail, especially with the loss of Donestsk and Lugansk, the chief income generators for the Kiev Kriminals.

Thu, 06/19/2014 - 14:26 | 4874626 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Ukrainians can burn the worthless bonds this winter after their gas supply runs out. It is going to be cold!!!!

Thu, 06/19/2014 - 14:29 | 4874655 Latina Lover
Latina Lover's picture

Actually, if the Ukrainian government was really representing the Ukies, they would default on all debt, screw everybody and start afresh.  Of course this means that Oligarchic wealth would be largely vaporised, so this will never happen under the Porkyschenko Fascists.

Thu, 06/19/2014 - 14:55 | 4874780 Haus-Targaryen
Haus-Targaryen's picture

How is it even possible that Ukranian bonds are trading even close to par.  

What a farse this is.  

 

Thu, 06/19/2014 - 15:18 | 4874884 Latina Lover
Latina Lover's picture

Any Market of  Interest to the USSA is 'managed'.

Thu, 06/19/2014 - 14:28 | 4874643 Latina Lover
Latina Lover's picture

Porkyschenkos Nuts are in the Russian Vice, and Putin is turning the handle, slowly, relentessly....

Thu, 06/19/2014 - 15:53 | 4874546 813kml
813kml's picture

Didn't the IMF already accept Ukraine's IOU (a protracted civil war)?

Just have the CIA put it on their AMEX Black (ops) Card.

Thu, 06/19/2014 - 14:04 | 4874549 border dog
border dog's picture

Someone is eating bad mushrooms again.....

Thu, 06/19/2014 - 14:13 | 4874579 disabledvet
disabledvet's picture

http://www.reuters.com/article/2014/06/19/us-ukraine-crisis-fighting-idU...

"these are no mushrooms." pushing daisies more like it. we're well past the point of finding "political solutions." pipelines are being blown up all over the place now.

"Long the Koch Brothers." They're talking about 300 million for the election cycle...a truly staggering number. "There is a point where you are buying the Government itself."

Thu, 06/19/2014 - 14:15 | 4874588 Cognitive Dissonance
Cognitive Dissonance's picture

Is there such a thing? Putin's magic mushrooms sound pretty tasty to me. Of course the US thinks it can "win" a nuclear war with Russia. So who exactly is eating the shrooms around here?

Thu, 06/19/2014 - 14:27 | 4874634 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

US thinks it can "win" a nuclear war with Russia.

NO one wins in a nuclear war. That is why there will never be a major one.

Thu, 06/19/2014 - 14:57 | 4874686 Cognitive Dissonance
Cognitive Dissonance's picture

Yes. My son was the result of a minor pregnancy because I forbade my wife from having a major one. Imagine what would have happened if she had.

Thu, 06/19/2014 - 14:08 | 4874564 overexposed
overexposed's picture

Real wars do often start with economic ones, don't they?

Nothing new to see here, just history running in circles again.

Thu, 06/19/2014 - 14:22 | 4874605 CrashisOptimistic
CrashisOptimistic's picture

You guys just can't learn the lesson.

No financial event that can threaten anything systemic will be allowed to happen.  Argentina matters to no one.

Ukraine may or may not matter, depending on the swaps profile.

If they do matter and Russia tries a holdout strategy, legislation will be approved changing the rules on the relevant bonds after the fact to render Russia powerless.  This happens with approval of the EU, BIS and anyone else you need to approve it.

I repeat: Forget money and financial stuff as the vehicle of destruction.  If you didn't learn that in Greece, learn it now.

Only oil can (and will) take the system down.  All other threats can be undone by decree.  If you think TPTB will let the system unravel because someone is going to lose some money on bonds, you're just delusional.

Only oil matters.

Thu, 06/19/2014 - 18:57 | 4875649 Sirius Wonderblast
Sirius Wonderblast's picture

Mmm, Russia has the oil and the gas, and is now trading it in other than dollars.

Thu, 06/19/2014 - 14:10 | 4874571 LawsofPhysics
LawsofPhysics's picture

Please Russia has written off paper promises from Ukraine.  War is in fact a negotiation by other means...

same as it ever was.

Thu, 06/19/2014 - 14:42 | 4874715 disabledvet
disabledvet's picture

see below and "kinetic energy" includes speed as well as mass.

http://www.youtube.com/watch?v=VNCUeItvovs

these things can get out of control really fast...as Germany found out in World War II technical mastery is far from sufficient.

And again...for the record...i have not supported the diplomatic approach as there really is a lot worth fighting for in that region which in "real world speak" means you can get a war all too easily over there. "The history is horrific" to say the least.

http://en.wikipedia.org/wiki/Battle_of_Kiev_(1941)

Thu, 06/19/2014 - 16:39 | 4875196 LawsofPhysics
LawsofPhysics's picture

Optimist.  There isn't any energy (calories) or motivation for anyone to actually do shit, let alone "kinetic energy".

Fuck, for many people all over the world there is a war every day.  Every been to south central L.A.?

same as it ever was....

Thu, 06/19/2014 - 14:12 | 4874576 buzzsaw99
buzzsaw99's picture

russia is one of the biggest bond deadbeats in history

Thu, 06/19/2014 - 14:20 | 4874597 Cognitive Dissonance
Cognitive Dissonance's picture

You're just jealous the rest of the world allows Russia sloppy seconds (fifth's?) and your still underwater and unable to refi your mortgage, yet you still pay the damn thing on time. /sarc

Thu, 06/19/2014 - 14:24 | 4874612 buzzsaw99
buzzsaw99's picture

if i'm jealous it is because i can't ipo my brain child hedge fund ibuyshit.com and make a multi billion dollar bonus. sucks donit?

Thu, 06/19/2014 - 14:19 | 4874599 Au Shucks
Au Shucks's picture

Putin : 1102

Gay Prince: 0

Thu, 06/19/2014 - 14:46 | 4874728 SpanishGoop
SpanishGoop's picture

Kiev: "Accept the restructure Russia or we wont buy any gas from you anymore !"

 

Thu, 06/19/2014 - 15:11 | 4874853 kchrisc
kchrisc's picture

Seems the real "Domino Theory" is about to become a reality.

Thu, 06/19/2014 - 15:33 | 4874933 NoWayJose
NoWayJose's picture

Our very own Supreme Court has destroyed the incentives to negotiate on these bond restructurings.  In a world of debt, the unintended consequences will be severe.

Thu, 06/19/2014 - 15:36 | 4874949 HardlyZero
HardlyZero's picture

No Everlasting Gobbstoppers from the Chocolate King ?

Reality.

Thu, 06/19/2014 - 15:39 | 4874963 gold_pa3ot
gold_pa3ot's picture

It looks like Putin is HUYLO!

Thu, 06/19/2014 - 15:43 | 4874983 TheFourthStooge-ing
TheFourthStooge-ing's picture

Hey, retard, time to learn a new trick.

Thu, 06/19/2014 - 19:01 | 4875666 Sirius Wonderblast
Sirius Wonderblast's picture

Kiev may try and look proud now, but come winter and no energy... as I have said before, this ends the way it did for Hitler and Napoleon.

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