Ben Aris in Moscow -

The $3.6bn debt deal announced on August 27 by Ukraine’s Ministry of Finance, where private bondholders agreed to take a 20% writedown on the face value of $18bn in government debt, is very good news. Yet it’s not a done deal and the final sum that will be restructured will almost certainly be less than the headline figure.

As bne reported, this is only a preliminary deal, which still has to be approved by the holders of the bonds – a process that will last well into October.

What was actually agreed was that in principle some of the bondholders – those that were members of the ad hoc credit committee, especially Franklin Templeton, which holds some $8bn – would agree to this 20% haircut.

But as Ukrainian Finance Minister Natalie Jaresko said, this committee only holds a supermajority share in ”some” of the bonds where it can force a deal on the other investors. That means the rest of the bondholders also need to sign off on the deal on “most” of the bonds, an outcome that remains uncertain. The bondholder approval process for the deal will actually only start in the middle of September and then the investors have 21 days to make up their minds.

The head of the International Monetary Fund (IMF), Christine Lagarde, highlighted the fact that a lot of work has still to be done in a statement announcing the downgrade. And more ominously, Fitch said that it “does not envisage developments that would result in a positive rating action at this time.”

A full-on default of Russia’s $3bn Eurobond would only make matters worse.