[ad_1]
Ukraine said on Monday it had reached a deal in principle with some of its creditors to restructure $20 billion in international bonds, bringing the war-torn country closer to an unprecedented debt restructuring.
Ukraine’s announcement comes with just over a week left before a two-year debt standstill agreement expires in 2022, and is the first time a country has begun debt restructuring during a full-scale war.
“After months of engagement and efforts with private bondholders, the IMF and bilateral partners, we have reached an agreement in principle with the ad hoc creditor committee on a comprehensive restructuring of the public external debt,” Finance Minister Sergey Marchenko said in a statement.
He added that this was an important step in ensuring Ukraine had the cash resources needed to maintain budget stability and continue to finance its national defense.
Ukraine’s finances are in a precarious position as its 28-month war with Russia drags on. Russia’s 2022 invasion devastated Ukraine’s economy, which has become heavily dependent on international partners for funding and military assistance.
Sources and analysts familiar with the negotiations said November’s U.S. presidential election and the risk that Donald Trump’s commitment to support Ukraine would falter under the presidency had added pressure to restructure the debt.
The proposal would entail a notional 37% write-down on Ukraine’s outstanding international bonds, saving Kiev $11.4 billion in payments over the next three years — the country’s program with the IMF expires in 2027, according to a government statement.
The Ukrainian government said the IMF had confirmed the deal was in line with the parameters of its $122 billion aid package and that the country’s official lender, the Group of Creditors of Ukraine (GCU), had also signed on to the agreement.
A spokesman for the Paris creditor club, which normally handles GCU communications, confirmed that the club was happy with the proposal.
The IMF welcomed the agreement and confirmed it was consistent with current plans, adding that it “will reduce Ukraine’s debt burden to sustainable levels, thereby ensuring space for critical spending and supporting growth.”
Ukrainian Prime Minister Denis Shmyhal said in a message on the Telegram app that the agreement would free up resources for urgent needs, including defense, social security and recovery.
A German Finance Ministry source welcomed the draft agreement and said it was a key step in preserving the Ukrainian government’s ability to act and plan ahead.
An ad hoc creditor committee that holds 22% of the country’s sovereign bonds called the agreement “swift and constructive.”
“We are pleased to be able to provide Ukraine with substantial debt relief, assist its re-access to international capital markets, and support future reconstruction,” the EU said in a statement.
Towards the finish line
Under the proposal, some new bonds would pay a 1.75 percent coupon starting next year, rising to 7.75 percent from 2034. Bondholders would also receive a consent fee.
Interest payments have been a thorny issue in the negotiations. Bondholders seek financial inducements to agree to renegotiate, while Ukraine’s international partners, such as the Group of Seven and the International Monetary Fund, object to the idea of transferring large sums of money to private lenders and away from strained government finances.
Under the agreement, payments to bondholders will be less than $200 million by the end of 2025.
Although the bonds have a face value of $19.7 billion, Ukraine still owes about $23 billion in overdue interest.
International bond prices surged more than 5 cents on the dollar following the announcement, with most maturities trading around 35 cents, the highest in about two years.
Ukraine’s $2.6 billion worth of GDP warrants – fixed-income instruments whose payouts are tied to the strength of economic growth – are not part of the restructuring, but the government said it would “ensure fair and equitable treatment of warrant holders”.
Bondholders will vote on the proposal in the coming weeks. If enough approval is obtained, the government will issue new bonds.
The first payment after a two-year moratorium is due on August 1, but Ukraine passed a law last week allowing it to skip payments or even temporarily default while the deal is finalized.
It would be Ukraine’s second debt deal brokered by a neighbor in a decade: Ukraine restructured its debt after Moscow annexed Crimea in 2015.
“Once completed, this restructuring will also pave the way for Ukraine’s return to the market as soon as possible after the security situation stabilizes, providing funds for the rapid recovery and reconstruction of our country,” Marchenko said in the statement.
Read more by Euractiv
[ad_2]
Source link
