A total of 16 defaults registered in Ukraine in the 1st quarter of 2009
03/04/2009
On April 2, 2009 in Kyiv a press conference entitled “Possible defaults in various sectors of Ukrainian economy and ways of avoiding them” was held jointly by the leading Ukrainian law firm Vasil Kisil & Partners and Credit-Rating rating agency. In his opening remarks, VKP’s Partner and Head of Real Estate & Construction Practice Oleg Alyoshin explained that the main purpose of this event was to provide a comprehensive review of how the growing number of defaults by special-purpose bond issuers is affecting the perspective of the Ukrainian bond market development. "We decided to gather mass media representatives, companies that are issuers of special purpose bonds, asset management companies and investors to showcase main legal mechanisms of preventing defaults in the area of construction finance and get the view of a rating agency on how the restructuring affects credit rating of the Ukrainian issuers”, - Mr. Alyoshin said.
As stated by the general director of this rating agency Stanislav Dubko in the period of January-March of 2009 Credit-Rating (Kiev) registered nine bond defaults in the area of construction finance. According to his data in 2008 there were 22 defaults registered in Ukraine, out of which 17 defaults took place in the forth quarter (10 from the corporate sector and 7 from the sector of construction finance).
Mr. Dubko noted that only 11% of all construction companies who issued bonds are going to be able to fulfill their obligations and not miss deadlines. According to his words, the number of bond defaults grows steadily and more than likely it is going to stay this way in the nearest future.
In the mean time, as specified by the senior associate of Vasil Kisil & Partners Natalia Dotsenko-Belous the situation when bond issuers can not fulfill its obligations is not always considered an actual default, since in many cases the issuer can successfully overcome it.
Mrs. Dotsenko-Belous reviewed the five existing models of how the issuers can legally deal with the impending default. The first model presumes an exchange of a bond liability for another type of liability. The second mechanism of default prevention executes the retirement of bonds through the transfer of the right to apartment ownership. This is done when both parties sign an act of acceptance of property (apartment) with a contingency clause. The third model can be implemented even before the life of the bond is over and presumes that the issuing of the bond itself is invalidated and considered void. The forth model is based on paying off bonds with monetary funds. Moreover, the fifth model allows for bonds that reached their maturity date but were not claimed to be redeemed at par.
Natalia Dotsenko-Belous also noted that the unique thing about the default as a special legal phenomenon is the fact that legally there are no consequences for the issuer, no criminal, administrative, or financial liability. However, by law, the issuer can be found liable for damages caused by his actions and Natalia encouraged investors to use legal council and seek a resolution in court.
As stated by the general director of this rating agency Stanislav Dubko in the period of January-March of 2009 Credit-Rating (Kiev) registered nine bond defaults in the area of construction finance. According to his data in 2008 there were 22 defaults registered in Ukraine, out of which 17 defaults took place in the forth quarter (10 from the corporate sector and 7 from the sector of construction finance).
Mr. Dubko noted that only 11% of all construction companies who issued bonds are going to be able to fulfill their obligations and not miss deadlines. According to his words, the number of bond defaults grows steadily and more than likely it is going to stay this way in the nearest future.
In the mean time, as specified by the senior associate of Vasil Kisil & Partners Natalia Dotsenko-Belous the situation when bond issuers can not fulfill its obligations is not always considered an actual default, since in many cases the issuer can successfully overcome it.
Mrs. Dotsenko-Belous reviewed the five existing models of how the issuers can legally deal with the impending default. The first model presumes an exchange of a bond liability for another type of liability. The second mechanism of default prevention executes the retirement of bonds through the transfer of the right to apartment ownership. This is done when both parties sign an act of acceptance of property (apartment) with a contingency clause. The third model can be implemented even before the life of the bond is over and presumes that the issuing of the bond itself is invalidated and considered void. The forth model is based on paying off bonds with monetary funds. Moreover, the fifth model allows for bonds that reached their maturity date but were not claimed to be redeemed at par.
Natalia Dotsenko-Belous also noted that the unique thing about the default as a special legal phenomenon is the fact that legally there are no consequences for the issuer, no criminal, administrative, or financial liability. However, by law, the issuer can be found liable for damages caused by his actions and Natalia encouraged investors to use legal council and seek a resolution in court.