Raising debt on the domestic market proved to be not less difficult. According to the State Commission for Securities and Stock Market of Ukraine ("SEC") in January-August the volume of bonds issues decreased by 2.7 times – to UAH 8.66 billion. Number of issues decreased from 572 to 185. According to experts, most of these issues were accomplished in connection with restructuring of existing debt or were technical (designed for optimization of cash flows inside of business groups). During the first 9 months of 2009 there were approximately 40 technical defaults. As a result, corporate bonds, always one of the most conservative instruments, turned out to bear real risk.

Many debtors in order to avoid defaults and bankruptcies started exploring opportunities for restructuring of outstanding debts. One of the most significant challenges related to restructuring remained to be insufficient legal regulation of relevant procedures. Internationally common restructuring know-how and techniques for settling difficulties in relations between bond issuers and bondholders have not yet been properly implemented in Ukraine. Moreover, as a rule corporate bonds are not secured and in case of bankruptcy of the issuer claims of the bondholders are satisfied at fourth priority leaving them with a few chances to return their investment. A technical default of hypermarket's operator "Karavan", pending in court for more than half a year, is a good example of insufficient security over rights of bondholders under Ukrainian law. Bondholders' rights were also negatively impacted by NBU's Resolution No. 421 prohibiting from early repayment on banks' debt securities except for redemptions at a price lower than 50% of the face value which does not lead to considerable worsening of the bank's liquidity. The resolution was not registered by the Ministry of Justice, but appears to be applied by Ukrainian Banks in practice starting from 22 July 2009. The completed and pending restructuring transactions once again revealed that absence of specific regulation for debt-for-equity swaps creates significant difficulties on the way of efficient restructurings and needs to be addressed by legislators and regulators without delay.

Effective from 15 November 2009 (apparently subject to Ministry's of Justice approval pending at the time of writing this article) the National Bank of Ukraine ("NBU") restored caps on interest rates under loans from foreign lenders to Ukrainian borrowers abolished about a year ago (except for loans with less than one-year maturity which continued to be subject to interest rate limitation of 11 % p.a.). Under the NBU's new resolution the re-established interest rate limits equal : 9,8% p.a. for short-term (less than one year) loans , 10% p.a. for loans with the term from one to three years, and 11% p.a. for loans with the term over three years. Floating interest rates are now capped at LIBOR for three month USD deposits plus 750 basis points. The new regulation should not apply to existing loans unless they need to be amended. The NBU may refuse registration of loan amendments resulting in the interest (defined as including all related costs, such as interest, fees, commissions and other payments to the lender) exceeding the regulatory cap. This rule, however, would not apply, if amendments relate to change of party's name, address, banking details or assignment of debt to a foreign borrower.

Many experts and market players have already expressed their dissatisfaction with such changes of NBU's regulatory policies, stating that the reintroduced caps will make international borrowings hardly possible for most of the Ukrainian banks and other corporate borrowers (many believe that loans at crisis may not be obtained even by the most reputable borrowers with the interest less that 12% p.a.). It is especially painful for the borrowers negotiating restructuring of their existing debt. NBU's interference into this process by establishing non-market interest limitations raises the risk of the failure of restructuring efforts by Ukrainian borrowers.

Capital/finance markets may be also affected by the Law "On Amendments to certain Ukrainian laws for the purpose of overcoming negative consequences of the financial crisis" adopted by the Parliament in the end of October 2009 and awaiting execution by the President of Ukraine at the time of writing this article.. This Law provides for a ban on early prepayments of loans received from foreign lenders. It appears that such limitation will most likely challenge credibility of Ukrainian borrowers and will become another obstacle on the way of getting finance deals done.

Due to the problems with the state budget deficit and the urgent need to recapitalize suffering banks, the governmental raised its activity on domestic debt capital market. By October the Ministry of Finance borrowed almost UAH 45 billion on the domestic bond market with the National Bank of Ukraine purchasing bonds in the amount of around UAH 28 billion).

The restructuring of corporate Eurobonds produced a number of success stories. One of the most discussed in media was Naftogaz. Upon its technical default on 30 September 2009 Naftogaz agreed with its bondholders to exchange $500 million in Eurobonds for new bonds guaranteed by the state and maturing in 2014. The new bonds would have a coupon rate of 9.5% p.a. compared with 8.125% p.a. on the previous issue. SEC by a separate resolution allowed Naftogaz to issue foreign debt securities governed by foreign law outside of Ukraine. Such decision was part of the restructuring requirements for the Government to grant security for Naftogaz' obligations before the bondholders. Prior to this only the Government was entitled to issue securities outside of Ukraine.

Among other borrowers restructuring Eurobonds were XXI Century, Nadra Bank, First Ukrainian International Bank, Bank Finance and Credit and Alfa Bank of Ukraine. Restructuring of a developer XXI Century may be viewed as one of the most efficient transactions. XXI Century proposed a gradual schedule of bond payment with a final date on 24 November, 2014. Over 90% of the holders of XXI Century Eurobonds issued in May 2007 and worth a total of $175 million agreed to restructure the debt until 2014.

In September 2009 SEC consented to Naftogaz' issue of debt securities abroad explaining that placement of foreign debt securities by Ukrainian issuer outside Ukraine does not require obtainment of SEC's special permit specified in the Article 37 of the Law "On Securities and Stock Market" (effective as of 3 May 2006). This consent further confused the answer to the question whether a direct issue of securities abroad is an option for a Ukrainian issuer. The Law "On Securities and Stock Market" removed the requirement of denomination of corporate bonds only in Ukrainian currency. However, the relevant provision remains in the Commercial Code leaving the matter unclear whether a direct issue is possible. The long-standing LPN structure for Ukrainian Eurobonds was developed to by-pass relevant restrictions of Ukrainian securities laws. It has to be seen whether SEC will now have a position consistent with applicable law and whether the regulation of new Eurobond issues will be clear to the market.

In general, tested under scrutiny by the world crisis the Ukrainian economy managed to "hold the blow" and survived in the turmoil while generating hopes for potential not too distant stabilization and growth. The Ukrainian government keeps avoiding the worst consequences by manual navigation in stormy economic seas. Some willful decisions, such as numerous relieves of Ukrainian state-owned borrowers from the burden of otherwise mandatory tender procedure for selecting lenders and financial and legal consultants proved to be an efficient mechanism allowing quick capital injections or expedited restructurings.