Foreign bondholders have accepted a 37% haircut on outstanding bonds
Ukraine has reached an agreement in principle with a group of foreign investors to restructure its $20 billion debt, as Kiev tries to retain access to international markets, the government has announced.
Bondholders – including US financial giants BlackRock and Pimco, as well as French asset manager Amundi – granted Ukraine a two-year debt freeze in February 2022 when the conflict with Russia broke out.
The bondholders’ committee, which controls 25% of the bonds, has agreed to accept losses of 37%, or $8.7 billion, on the nominal value of their debt, according to a statement with the terms of the accord published on the London Stock Exchange.
The International Monetary Fund (IMF) reportedly confirmed that the deal was compatible with the parameters of a $122 billion aid package to Kiev. Both the IMF and the country’s creditors, which include the US and the Paris Club, have signed off on it, according to the statement.
Kiev expects the discount to help it save tens of billions in payments in the coming years.
“This is an important stage in the debt restructuring process, which will save $11.4 billion in debt servicing over the next three years and $22.75 billion until 2033,” Prime Minister Denis Shmigal wrote on Telegram on Monday, adding that the deal would free up resources for defense.
Kiev already relies on foreign aid to keep government departments open and state employees paid. Ukraine’s military is almost entirely dependent on foreign funding and the country escaped default only after the US Congress approved a $61 billion aid package in April.
Ukraine’s announcement comes just over a week before the expiration of the debt-suspension agreement and marks the first time a country has embarked on a debt restructuring in the midst of a conflict. Last week, Kiev passed a law allowing it to miss payments and enter a debt default, while the restructuring agreement with investors is finalized.
Under the proposal, the creditors agreed to rework the existing claims into two series of bonds. The first standard bond series would start paying a 1.75% coupon from 2025, and will reach as much as 7.75%, with capital payments starting in 2029.
A second series making up 23% of the outstanding claim will offer higher payments if Ukraine’s economy outperforms IMF expectations in 2028, according to the terms of the preliminary deal.
Bondholders will vote on the proposal in the coming weeks.
