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Sweden to Give Ukraine $100 Million No-Interest Loan

Kiev:

Ukrainian President Petro Poroshenko today thanked the Swedish government for a $100 million loan for Kiev’s cash-strapped economy, one piece of a multi billion dollar package the country needs to avoid collapse.

“The government of Sweden has taken the decision to provide a $100 million loan to Ukraine,” Poroshenko said in a joint press conference with Swedish premier Stefan Loefven who is on a visit to the Ukrainian capital.

“The Swedish government is taking care of the interest on this loan themselves,” Poroshenko said, thanking Loefven for the decision and calling Sweden “a true friend of Ukraine” though without immediately clarifying the details of the loan.

Ukraine’s international partners are expected to put together an aid package worth around $40 billion over four years.

The cornerstone of that would be an IMF bailout of $17.5 billion over the next four years, with the IMF expected to make a decision later Wednesday over the funding.

Poroshenko voiced confidence in a positive outcome.

“I am sure that today there will be a positive decision (on the IMF loan),” Poroshenko said. “Today it will be a historical decision.”

Analysts have said Ukraine has but a few months before its economy collapses, making the loan a crucial lifeline. Kiev says it has met all the requirements to qualify for the bailout by pushing through a package of draconian reforms in recent weeks which included tripling the price of gas for households.

The austerity measures come on top of an already crippled economic base where a lot of the country’s industrial core in the east has either stopped working or was physically destroyed in the fighting with pro-Russia separatists.

Last week Ukraine’s central bank considerably hiked its base interest rate to 30 percent to stem further depreciation of a plummeting hryvnia and combat inflation.

“When I am asked how much financial assistance I expect, I say — the more the better,” said Poroshenko. “The total package being put together to help Ukraine… should be over $40 billion today.”

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This Bizarre Russian ATM Wants to Lend You Money

Walking past a row of vending machines and ATMs at the Kursky train station in Moscow, Sergei Amirkhanov stops in front of a bright orange cash machine. Instead of inserting his bank card, he scans his passport, poses for a photo and enters his mobile number. He receives a text message on his phone a few minutes later, telling him to return to the machine and withdraw the cash he needs.

This strange kind of ATM began popping up at railway stations and shopping malls around Moscow last year. It looks like a regular cash machine, but it’s designed to accept loan applications and dole out money on the spot.

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The loan ATM is a product of Oleg Boyko, a Russian billionaire who made his fortune running slot machine halls. When President Vladimir Putin banned gambling in 2009, Boyko moved the gambling business outside the country, but he continues to control financial firms and other companies in Russia. One of his investments is 4finance Holding and its affiliate, SMS Finance, which operates the micro-loan machines. Boyko, a paraplegic who helps support the Paralympic Games, has also dabbled in Hollywood. He’s an investor in Summer Crossing, a movie based on a Truman Capote novel that will be Scarlett Johansson’s directorial debut.

There are currently about 20 automated loan machines installed throughout Moscow. They allow customers to request as much as 15,000 rubles ($241) that must be paid back in 20 days or less. The interest rate is 2 percent a day, which works out to 730 percent on an annualized basis. That may seem insane, but some Russians have been willing to embrace the technology to make ends meet between paychecks.

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Amirkhanov, 37, took out a 3,000 ruble ($48) loan after he lost his construction job at a Moscow power station in February. He needed the money to hold him and his family over while he searches for work because his bank won’t let him borrow cash. “I have a banking card, but its balance is zero,” he says. “I am in a desperate situation.” Fallout from the conflict in Ukraine has taken a toll on the Russian economy, resulting in a freeze on some construction projects and an influx of Ukrainian refugees, who are creating more competition for jobs, he says. Amirkhanov was granted 15 days to pay back the loan, including 900 rubles in interest.

For many Russians, it’s the only way to borrow. After the value of the ruble began to plummet late last year, local banks took hits to their credit ratings and were no longer able to find lenders abroad. As a result, Russian banks have less cash to lend and are tightening client-scoring procedures to avoid bad loans. Leave it to a gambling magnate to have the stomach for risky consumer loans in this economy.

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Payday lenders similar to 4finance, such as Britain’s Wonga.com, are often characterized as vultures feeding on the vulnerable. Typical customers have poor credit or problems with employment or are uneducated about what financial options are available to them, according to Olga Naydenova, an analyst at BCS Financial Group in Moscow. “Their rates are way too high,” she says. “While regulation has been tightening for traditional banks, the micro-finance business has much softer requirements for capital adequacy.”

The absence of strict regulation allows micro-loan companies to provide options to people who would be passed over by traditional banks, according to Kieran Donnelly, chief executive officer of Boyko-backed 4finance. The company offers consumer loans in a dozen European countries, primarily through websites people access via computers or phones. More than 11 million loan applications have been submitted to 4finance, which lent €831 million ($944 million) last year. The company, which recently spun off the Russian SMS Finance unit to appease risk-averse investors, plans to hold an initial public offering as soon as 2016, Donnelly says. “Our objectives are about profitability and return on investment,” he says. “A big part of what we are offering to people is convenience.”

Recognizing that many potential customers may not have access to the Internet or trust it with their banking information, SMS Finance began working on the ATM and installed the first ones in Moscow in May 2014. They contain software that matches a photo taken by the machine with one on a passport to verify customers’ identities, which help the company evaluate each applicant’s creditworthiness within 15 minutes. It’s still something of an experiment, but the company plans to test the ATMs in Poland and Spain next.

When a loan repayment is due, customers can settle it at a local bank, an electronics store, online, or by using a digital payment system such as Qiwi or Yandex.Money. If someone tries to skip out on paying, company representatives send e-mails, text messages, and phone calls. After two to three months of chasing a customer, they may involve debt collectors. About 10 percent of borrowers default on their loans, but the company is recovering 55 percent of overdue debt, says Donnelly. As Boyko, the investor and gaming billionaire, can probably attest, those are better odds than he’ll get at the casino.

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Cash-strapped Ukraine expects IMF loan decision by late Jan

KIEV (Reuters) – Ukraine expects the International Monetary Fund to reach a decision on the disbursement of its next multi-billion dollar instalment of financial aid by late January, a senior presidential official said on Wednesday.

Ukraine has so far received two tranches of aid under the IMF programme worth a combined $4.6 billion, under a $17 billion (11 billion) bailout package agreed in April to shore up its foreign currency reserves and support the economy.

The third payment was delayed as the IMF waited for the formation of a new government, which has pledged to carry out the extensive reforms required under the bailout.

Ukrainian presidential adviser Valeriy Chaly said an IMF mission would visit Kiev in early January for the next round of talks on the loan programme, which the country has asked to have increased.

“We expect that all the decisions on macro-financial help will be reached by the last 10 days of January,” Chaly said in a televised briefing.

Ukraine’s foreign currency reserves have more than halved since the start of the year to a 10-year low due to gas debt repayments to Russia and efforts to support its struggling currency, the hryvnia.

Prime Minister Arseny Yatseniuk said Kiev, facing the additional financial burden of the rebellion in its eastern territories, risks defaulting unless Western donors come up with more funds in addition to what has already been pledged.

First deputy finance minister Ihor Umansky said on Wednesday that it was too soon to talk of restructuring the country’s debt.

“The question of restructuring … is not currently a subject of discussions,” he said at a briefing. “Until the aid package is agreed for Ukraine, it’s too early to discuss this.”

(Reporting by Natalia Zinets and Pavel Polityuk; Writing by Alessandra Prentice; Editing by Hugh Lawson)

Politics & GovernmentBudget, Tax & EconomyInternational Monetary FundUkraineforeign currency reserves […]

Putin Bailout Haunts Ukraine With Early Repayment Clause

The risk that Russia will seek early repayment of a $3 billion bond is adding to pressure on Ukraine as it races to secure more International Monetary Fund loans.

Russia has the right to call the Eurobond, bought a year ago to avert a default, if Ukraine’s public debt tops 60 percent of gross domestic product. The ratio may jump to 70 percent by Dec. 31, Moody’s Investors Service said Oct. 30.

While Russian President Vladimir Putin said last month he won’t use the redemption clause on the notes, part of a bailout package signed with deposed President Viktor Yanukovych, there’s no guarantee he won’t change his mind, said Paul McNamara at GAM UK Ltd. That could weigh on Ukrainian finances, strained by a war against pro-Russian separatists, political wrangling after October elections and uncertainty about further IMF aid.

“I wouldn’t rely on Russian officials’ statements about the bail bond,” McNamara said Dec. 3 by phone from London. “There’s a real prospect of a standoff between Russia and the IMF, which will find it hard to justify to the western countries the covering of an early repayment.”

Ukraine’s bonds lost 9.3 percent this quarter through yesterday, the most after Venezuela among 58 nations in the Bloomberg USD Emerging Market Sovereign Bond Index. (BEMS) The benchmark note due July 2017 fell 13 cents on the dollar in the period, touching a record-low 73.5 cents on Dec. 3. It traded at 74.3 cents by 10:13 a.m. in Kiev, yielding 22.8 percent.

IMF Requirements

The new government of Premier Arseniy Yatsenyuk, approved by lawmakers this week, needs to adopt a 2015 budget and tax laws complying with IMF requirements to qualify for the next $2.8 billion disbursement. Ukraine needs the cash, part of a $17 billion loan program, to repay other debt, buy heating fuel for winter and stem the hryvnia’s 46 percent slump this year.

Russia, which annexed Ukraine’s Crimea peninsula in March, has repeatedly denied accusations by NATO and the European Union that it’s supporting the insurgency across the border, which has killed more than 4,300 people and displaced 500,000.

The government in Moscow will determine whether Ukraine has crossed the 60 percent debt threshold based on IMF estimates expected early next year, Russian Finance Ministry official Andrey Bokarev said Nov. 27. The ministry didn’t immediately reply to an e-mail seeking comment yesterday.

‘Whole Amount’

The earliest Russia can try to call the bonds is after the ministry publishes preliminary 2014 GDP data in March, Halyna Pakhachuk, head of the Ukrainian Finance Ministry’s debt department, said yesterday. The government in Kiev has the right to wait with the payment until December 2015, when final GDP data is to be released, she said in a phone interview.

“Our 2015 budget will envisage the whole amount needed for the repayment,” Pakhachuk said.

Russia probably won’t call the bond early, according to Regis Chatellier, a London-based director of emerging-market credit strategy at Societe Generale SA, and Lutz Roehmeyer, a money-manager at LBB Invest in Berlin.

“Putin does not want to be seen as the one who triggered a default,” Chatellier said Dec. 3 by e-mail. SocGen has an underweight stance on Ukrainian debt. “The pressure on Ukraine would come very soon anyway as the bond matures next December.”

Towel ‘Thrown’

While Ukraine will probably avoid default, it will seek to re-negotiate debt terms in 2016 or 2017 to prolong maturities by three to five years, LBB’s Roehmeyer said Dec. 1 by phone. Current bond prices are already reflecting such a scenario, according to the money manager, who oversees $1.1 billion of debt from emerging markets including Ukraine.

“Investors are really fed up and most have thrown in the towel,” he said. “Everyone is realizing how far away from each other both sides are and that Russia keeps sending troops.”

Without more IMF payouts, Ukraine can’t stop the hryvnia depreciation that’s stoking bad loans and boosting the future costs of rescuing ailing banks, according to Marco Ruijer, who helps oversee $7.5 billion of emerging-market debt at ING Investment Management in The Hague.

“If the government implements reforms then the IMF will be willing to give them the benefit of the doubt and save them,” he said Dec. 1 by phone. “Russia could move forward the payment. It is a risk, but not one of my main risks.”

Should Russia call the bond, and if Ukraine is unable or unwilling to repay early, this could trigger a restructuring affecting other debt, according to Timothy Ash, London-based chief emerging-markets economist at Standard Bank Group Ltd. Potential losses for Russia on the $3 billion bond may not be a concern for Putin, Ash said Dec. 2 by e-mail.

“This is small change for Russia in the bigger scheme of things, and given its ambitions in Ukraine,” Ash wrote. “You have to ask why it included the debt-to-GDP trigger in the documentation anyway.”

To contact the reporters on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net; Natasha Doff in London at ndoff@bloomberg.net; Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net

To contact the editors responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net; Daliah Merzaban at dmerzaban@bloomberg.net Chris Kirkham

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[…]

Ukraine unlikely to receive IMF loan tranche this year – finance minister

* IMF $2.7 bln loan tranche unlikely in 2014

* Kiev in dire need of cash to pay gas bills

* Minister says gas deal with Russia unlikely on Wednesday

By Natalia Zinets

KIEV, Oct 28 (Reuters) – Ukraine is unlikely to receive a second tranche of a $17-billion loan programme from the International Monetary Fund this year as expected, Finance Minister Oleksander Shlapak said on Tuesday, in the latest economic blow to the debt-ridden country.

Ukraine, which has been fighting pro-Russian separatists in its east and struggling to resolve a months-long gas pricing dispute with Moscow, badly needs cash to support its budget, pay off debts and prop up its faltering hryvnia currency.

Kiev had expected that a second tranche, worth $2.7 billion, of the IMF bailout would come in December after the Fund’s mission was due later this month. But Shlapak said an IMF visit was unlikely before a new government was formed.

President Petro Poroshenko hailed a sweeping victory for pro-Europe parties in parliamentary election on Sunday, but it may take a month or more before a new cabinet takes over.

“An (IMF) mission will come when a new government is in place,” Shlapak told journalists. “They want to talk to a new government. The key question would be the adoption of a realistic 2014 budget.”

He added that most likely, the tranche would be postponed until next year.

“The maximum that we would like to achieve is to get an IMF decision (on the tranche disbursement this year),” he said.

The mission will also decide how much additional financial aid Kiev may need, after warning in September that if Ukraine’s conflict with the separatists runs into next year, the country may need as much as $19 billion in extra aid.

GAS MONEY

The delay of the disbursement means that Kiev can only count on 760 million euros in aid from the European Union this year.

Ukraine’s finance ministry says it has enough funds to cover its external debt obligations until the end of January, but Kiev has asked Europe for an additional $2 billion euros to cover its gas company Naftogaz’s bills for the current heating season.

“The plan envisages purchases of a maximum 7 billion cubic metres of gas by the end of this heating season,” Shlapak said. “Naftogaz does not want to err and therefore we’re working on additional funding, we’re asking everyone we can.”

Russian President Vladimir Putin said on Friday he hoped Moscow and Kiev would finally reach a deal to end their gas dispute, in which Moscow has halted supplies to Ukraine.

The Russian and Ukrainian energy ministers are expected to hold talks with the European Commission in Brussels on Wednesday over Ukraine’s unpaid bills and the price Kiev pays for its gas.

Shlapak said a deal there was unlikely.

“I have the impression that the Russian side does not want to negotiate,” he said. “The conditions that are proposed do not stand up to criticism.”

Putin has appealed to the West to help Ukraine raise funds to pay for its gas supplies, adding that Kiev already owed Moscow $4.5 billion for deliveries last year and this.

Ukraine must pay $3.1 billion of that by the end of the year, which could cause a huge dent in the country’s gold and foreign reserves. They currently stand at $16 billion.

(Writing by Lidia Kelly, editing by Elizabeth Piper and Gareth Jones)

Politics & GovernmentBudget, Tax & EconomyUkraineInternational Monetary Fund […]

Russia to Continue Cash Injection to Ukraine

Russia’s finance minister says Moscow will provide a fresh cash injection to Ukraine after several weeks of stalled payments to Kiev.

Anton Siluanov said that Ukraine would receive $2 billion (1.46 billion euros) this week. After Ukrainian President Viktor Yanukovych shelved an agreement to deepen ties with the European Union, Russia promised Kiev a $15 billion loan.

Moscow has only disbursed $3 billion so far, and last week Siluanov said Russia wanted to ensure Ukraine would “make good on (its) obligations” before transferring the cash. Russia showed increasing impatience as Yanukovych failed to disperse protesters who were camped out in government buildings in the Ukrainian capital.

On Sunday, however, demonstrators ended their nearly three-month occupation of the buildings in exchange for the release of jailed protesters.

[…]

Russia to continue cash injection to Ukraine; will give $2B this week

MOSCOW – Russia’s finance minister says Moscow will provide a fresh cash injection to Ukraine after several weeks of stalled payments to Kyiv.

Anton Siluanov said that Ukraine would receive $2 billion this week.

After Ukrainian President Viktor Yanukovych shelved an agreement to deepen ties with the European Union, Russia promised Kyiv a $15 billion loan.

Moscow has only disbursed $3 billion so far, and last week Siluanov said Russia wanted to ensure Ukraine would “make good on (its) obligations” before transferring the cash.

Russia showed increasing impatience as Yanukovych failed to disperse protesters who were camped out in government buildings in the Ukrainian capital.

On Sunday, however, demonstrators ended their nearly three-month occupation of the buildings in exchange for the release of jailed protesters.

[…]

Russia in Talks on Ukraine Loan as Meeting Sets Stage for Deals

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Photographer: SeongJoon Cho/Bloomberg

President Vladimir Putin and his Ukrainian counterpart, Viktor Yanukovych, will lead… Read More

President Vladimir Putin and his Ukrainian counterpart, Viktor Yanukovych, will lead discussions at the sixth meeting of an intergovernmental commission in Moscow tomorrow, with a “substantial” package of agreements set to be signed, the Kremlin said in an e-mailed statement today. Close

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OpenPhotographer: SeongJoon Cho/Bloomberg

President Vladimir Putin and his Ukrainian counterpart, Viktor Yanukovych, will lead discussions at the sixth meeting of an intergovernmental commission in Moscow tomorrow, with a “substantial” package of agreements set to be signed, the Kremlin said in an e-mailed statement today.

Russia is in talks with Ukraine on providing a loan, the Finance Ministry said as the cash-strapped east European nation races to avoid default.

President Vladimir Putin and his Ukrainian counterpart, Viktor Yanukovych, will lead discussions at the sixth meeting of an intergovernmental commission in Moscow tomorrow, with a “substantial” package of agreements set to be signed, the Kremlin said in an e-mailed statement today. The Finance Ministry’s press office in Moscow declined to elaborate on the negotiations in a written reply to questions from Bloomberg.

Ukraine has been gripped since last month by the biggest protests in almost a decade after Yanukovych pulled out of a planned cooperation pact with the European Union. With the economy ensnared in its third recession since 2008 and foreign-currency reserves at a seven-year low, the country needs at least $10 billion to avoid default, First Deputy Prime Minister Serhiy Arbuzov said Dec. 7.

“I don’t rule out the possibility that the loan will be extended — should such a request come,” Andrei Belousov, Putin’s top economic aide and a former economy minister, was cited as saying by state-run RIA Novosti’s Prime news service. “The situation in Ukraine is such that economic stability won’t be maintained without loans of some kind.”

Ukraine’s hryvnia weakened 0.2 percent against the dollar to 8.2850 as of 10:25 a.m. in Kiev. The yield on Ukraine’s dollar-denominated notes due 2023 fell four basis points, or 0.4 percentage point, to 10.12 percent. The cost to insure the country’s debt against non-payment for five years using credit-default swaps was little changed at 1,056.61, the highest in Europe.

Ukrainian U-Turn

The second-most populous ex-Soviet country last month backed out of a trade deal with the EU in favor of closer ties with Russia. Yanukovych walked away from the EU deal after Russia, which supplies 60 percent of Ukraine’s natural gas and buys a quarter of its exports, threatened trade sanctions.

The Ukrainian government has failed to reach a deal over a $15 billion facility with the International Monetary Fund, disagreeing over energy subsidies.

At tomorrow’s meeting in Moscow, Russian and Ukrainian officials will discuss the key questions of bilateral relations, including energy, agriculture, investments and others, according to the Kremlin statement.

Russian Economy Minister Alexei Ulyukayev said last week that Ukraine couldn’t join his country’s customs bloc with Kazakhstan and Belarus anytime soon. Speculation that a deal on its membership in the trade bloc was imminent stoked Ukrainian protests in recent weeks.

To contact the reporters on this story: Olga Tanas in Moscow at otanas@bloomberg.net; Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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