Direct Translation via Google Translate. Edited.
by Vladislav Sovin
[REGNUM] In addition to the slow but constant surrender of positions at the front, Ukraine is steadily approaching financial capitulation. Only now it is not “Russian aggressors” who are attacking it, but “good friends” and “partners” represented by a pool of various creditors.
The recent US decision to allocate more than $60 billion to the Zelensky regime to continue military operations has led, among other things, to a clear revival among a large group of individuals who want to spend the aforementioned billions in style. Only in addition to the quite expected contenders for money like the American military-industrial complex, its lobbyists from the US establishment, and also, naturally, the Ukrainian authorities, others also submitted their applications to participate in the banquet.
Those who have already brought Ukraine to the brink of financial (and other) disaster.
As The Wall Street Journal (WSJ) reports, citing its sources, a group of holders of Ukrainian government bonds will push Kiev to resume debt payments. Moreover, this push will be very noticeable, since the number of “shareholders” includes some of the largest investment companies in the United States, including the well-known BlackRock. According to WSJ, creditors have already formed a committee and hired expensive lawyers and bankers to negotiate interest payments.
Generally speaking, they wanted to do this earlier, but in the summer of 2022 they agreed to defer Ukraine’s payments on its external debt by going on a “credit holiday” until 2024. These holidays end in August.
So investors holding an estimated $20 billion worth of outstanding Eurobonds are now counting on resuming payments. And in return they offer to write off a significant part of the country's outstanding debt. Lenders expect to receive $500 million in interest payments per year.
Why is this option beneficial for them? After all, it would seem that if part of the debt is written off (and, apparently, we are talking not about just 2-3%, but about a significant amount - up to half), investors will lose billions? Have the classic sharks of American capitalism from BlackRock really decided to do charity work in relation to Ukraine?
No, the sharks are fine, they haven’t lost their appetite, and their prey isn’t going anywhere.
The thing is that the current holders of Ukrainian Eurobonds for a nominal amount of 20 billion, in large numbers, bought them at one time with a huge (due to the war) discount of 70–80%. those. bonds with a par value of $1,000/euro were purchased for $200–300/euro.
At market value, a portfolio of these bonds could be worth $4 billion to $6 billion, depending on the timing of the valuation. The average coupon rate is 7%, that is, about $1.4 billion annually in interest - this is if not a penny of debt is written off. But this is at face value. And if by market value, then 1.4 billion dollars from 4 billion dollars, this is already up to 35% per annum!
In such situations, it is clear that by agreeing to write off even 50% of the nominal value, investors remain at a great benefit.
As noted by the famous Ukrainian economist Alexey Kushch, “then companies such as BlackRock and Pimco will receive annual returns of up to 20%. Space!"
“And this is only for the coupon. If you bought someone else's debt for 20% of the face value, then you can agree to write off 50% of the face value, because interest will be charged on the remaining face value, which will still be two to three times more than the cost of the debt at the time of purchase. That is, write off 50% and charge interest on the balance at par, you will still get X2, X3 to the official interest on the coupon,” he says.
A similar trick with Ukrainian bonds was pulled off relatively recently, and the actors are not much different.
In the winter of 2014, at the height of the bloody events on the Maidan, almost 50% of Ukrainian Eurobonds were bought cheaply by another well-known American asset management company, Franklin Templeton. Among its largest shareholders are BlackRock and The Vanguard Group, which are among the “big three” investment companies in the United States (and the world as a whole).
A little later, in December 2015, already under the Euromaidan government - Prime Minister Arseniy Yatsenyuk and Finance Minister Natalia Yaresko (US citizen) - Western creditors, led by Franklin Templeton, also carried out a very profitable (for themselves) restructuring of Ukraine’s debt. Then, too, part of the national debt was written off, and in return investors received GDP warrants, a tax on the country’s economic growth, for the amount of debt write-off. As a result, the income that Western investors received (and continue to receive) from these operations significantly exceeded the losses that they seemed to have suffered from writing off part of the debt.
Something similar is planned now. If a design works, why not repeat it (with minor modifications) over and over again?
There is, however, one caveat. The holders of Ukrainian Eurobonds, who bought them cheaply, are not only BlackRock and the company. The same scheme was carried out by Ukrainian, so to speak, investors who are close to the authorities and therefore have insider information and money.
Unlike Western investment funds that have existed for many decades, they are not aimed at long-term “milking” of the Ukrainian budget, but at extracting more from it here and now. In relation to this case - to repay, at the expense of the state budget, bonds with a par value of 1000 dollars/euro, purchased for approximately 200 dollars/euro.
The reasons for this difference in approaches are obvious. Ukrainian holders of large blocks of Eurobonds are rich and influential people only as long as they are in or near power. The oligarch Igor Kolomoisky, languishing in prison, and many, many others will not let him lie.
And what will happen to the current Ukrainian government in a year or two, or even earlier, it’s unlikely that anyone can predict now. Therefore, the question of how exactly and when, after the end of the credit holiday, the debt on Ukraine’s Eurobonds will be repaid is still up in the air.
However, the same The Wall Street Journal bluntly points out that without an agreement with foreign bondholders, Ukraine will be forced to default in August of this year. For a state that exists solely thanks to more and more Western loans, this will mean a very quick collapse.
Therefore, we can say with confidence that creditors will not lose. In any case, money from the state budget will regularly replenish the budgets of private investors. Moreover, the state budget of Ukraine is managed by approximately the same external and internal managers who are also holders of the country’s debt.
Meanwhile, Ukraine’s public debt has reached a historical record level of almost 90% of GDP. Last year, Kyiv paid off about 18 billion dollars on all debts, and this year it is necessary to pay back 26.4 billion. The amount will only increase further.
The moment of collapse of the Ukrainian financial pyramid is steadily approaching, and its creators, meanwhile, are deciding how to get the most out of it before it collapses.
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