DEBT WOES

Jayne Sutcliff, of Regent Capital, said on Thursday in London that the company had rejected Ukraine's proposal to redeem 20% of the bonds and restructure the remainder into three-year eurobonds. In her words, the bond agreement carried explicit cross-default clauses and the condition that it be governed by English law.

Previous restructuring of bonds did not trigger default because the issues were governed by Ukrainian law.

On June 9 the Ministry of Finance was to have repaid the main part of the ING Barings loan by redeeming the hryvnia-based bonds against which it had issued and placed other securities. However, the ministry did not make the payments. Minister of Finance Ihor Mitiukov said restructuring negotiations with the bank continue.

Some bankers interpreted the absence of negative statements from the bank after failure to repay the loan as a sign that ING Barings now wants to settle the problem amicably, for example, by seeking more favorable conditions for restructuring.

Oleksiy Plotnykov, Professor at the Institute of World Economy and International Relations, thinks that a cross default "would deal a serious blow to the state's image abroad... A cross default would mean a more tense relationship with the International Monetary Fund and World Bank," Mr. Plotnykov told the Center for Journalistic Research.

Meanwhile, the Finance Ministry with IMF support continues to negotiate loan restructuring with ING Barings. No one knows when the talks will end, but the danger of a cross default will no doubt make the Ukrainian government more flexible.

By Vladyslav MYKHALIOV, Center for Journalistic Research