Ukraine Reaches $20 Billion Debt Restructure Deal With Key Bondholders

Ukraine reached a $20 billion private debt restructuring agreement that will save the country essential finances for the war and future recovery.

Thanks to the deal, Ukraine expects to save $11.4 billion over the next three years by a combination of lower coupons and maturity extensions, the Ministry of Finance said on Monday, July 22.

The government and the bondholders committee – Amundi SA, BlackRock Inc and Amia Capital LLP, and other investors holding 25 percent of the bonds – reached the principle agreement during July 12-19 talks, in a deal that must still get the nod from at least two-thirds of all bondholders to be finalized.

Bondholders agreed to forgo $8.67 billion in claims, accepting nominal losses of 37 percent of their holdings across 13 bonds.

The restructuring transaction will cover Eurobonds maturing in 2024-2035, according to a statement published by the London Stock Exchange. 

“After the restructuring is completed, the maturity of the Eurobonds will be extended: the first repayment of $1.172 billion will take place in 2029,” the Ministry of Finance stated. 

“Without the restructuring, $9.381 billion in principal (excluding capitalized interest) would have been due between 2024 and 2029,” it said.  

The International Monetary Fund (IMF) confirmed that new debt conditions are compatible with the debt sustainability objectives of Ukraine's Extended Fund Facility (EFF) program, which the IMF launched for Ukraine to help keep the economy resilient after Russia’s full-scale invasion – the first program for a wartime country in the fund’s history.  

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The debt objectives are anchored in the “baseline” scenario of the fourth review of the EFF program, which takes into account the 1 percent real GDP decline caused by Russian strikes on Ukraine’s energy infrastructure. This was a boon for Ukraine, as earlier, less up-to-date baseline scenarios were based on a rosier outlook. 

Ukraine’s Eurobond price rallied after news of the agreement, Bloomberg wrote. 

The dollar bonds advanced. The security maturing in March 2035 added more than 3 cents on the dollar to 31 cents, Bloomberg reported Monday morning.

Ukraine Will Continue Negotiating GDP Warrants, Ukravtodor Eurobonds

Ukraine has reached a deal, but two tasks remain.

First, Kyiv and bondholders must agree on new conditions for bonds issued by the State Agency for Restoration and Development of Infrastructure (Ukravtodor) – which manages roads.

The $700 million Ukravtodor bonds, first issued in 2021, will likely be restructured along the same lines as the others, a statement published by the London Stock Exchange says. 

Second, the Ministry of Finance informed bondholders it will negotiate GDP-linked warrants – where creditors get interest based on the success of the economy – that had been issued during Ukraine’s 2015 debt restructuring.

Background

Russia’s full-scale 2022 invasion forced Ukraine to increase debt to cover war spending. 

With defense spending increased from 5 percent of GDP to 22 percent, Ukraine and bondholders agreed to pause payments.

Sources in the Ministry of Finance told Kyiv Post that it had meanwhile kept in touch with bondholders over the two year pause, discussing debt restructuring.

News emanating from the first round of negotiations last month had brought little hope, with the government and bondholders failing to reach a compromise. 

Bondholders didn’t agree with the nominal cut of 25 to 60 percent proposed by Ukraine's Ministry of Finance. 

On the other hand, the Creditor Committee suggested a nominal cut of 22.5 percent – just 2.5 percent less than the minimum cut Ukraine proposed.

Ukrainian officials spoke positively about the news.

“Finalizing this restructuring agreement will create the conditions for Ukraine to return to the international capital market as soon as possible, when the security situation stabilizes, to finance the rapid recovery and reconstruction of our country,” Finance Minister Serhii Marchenko wrote on Facebook. 

Even with the $11.4 billion in savings, the Ministry of Finance is still seeking sources to pay an extra Hr.500 billion ($12.5 billion) needed for defense this year.

In 2024, Ukraine plans to spend Hr.1.7 trillion ($47 billion) on defense – more than its whole budget in 2021.