- Ukraine says the move will save it $5 billion over two years
- Creditors support a similar move for two state-owned companies
- Comprehensive post-freeze debt restructuring
LONDON/NEW YORK, Aug 10 (Portal) – Ukraine’s foreign creditors have backed their request for a two-year freeze on payments on nearly $20 billion worth of international bonds, a regulatory request showed on Wednesday, a move , which will allow the war-ravaged country to avoid a messy default.
With no sign of peace or a ceasefire on the horizon nearly six months after the Russian invasion began, holders of about 75% of the outstanding total approved of Kiev’s proposal, documents showed.
“Ukraine will save almost $6 billion in payments,” Prime Minister Denys Shmyhal said in a statement. “These funds will help us maintain macro-financial stability, strengthen the sustainability of the Ukrainian economy and improve the power of our army.”
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The request had to be approved by holders of at least two-thirds of the total issue and more than 50% of each issue.
“The two-year debt freeze makes sense because even if the war ends soon, Ukraine’s situation will not improve overnight,” said Stuart Culverhouse, chief economist at London-based research firm Tellimer. “The creditors were even surprised that the country decided to hold the bonds until now.”
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BlackRock Inc (BLK.N), Fidelity International, Amia Capital and Gemsstock Ltd are among Ukraine’s largest debtors, whose market value has plummeted more than 80% since Russian troops began building up on its borders in late 2021.
A separate but related lender-approved consent solicitation allows for approximately $2.6 billion in modifications to GDP warrants, a derivative security that triggers payments tied to a country’s gross domestic product.
Creditors of Ukravtodor and Ukrenergo, two state-owned companies that have government guarantees for their debts, have approved separate motions similar to the one proposed by the sovereign.
DEBT RELIEF
As Ukraine faces an estimated economic contraction of up to 45% in 2022, bilateral creditors including the United States, Britain and Japan had also backed a debt repayment delay, and a group of governments in the Paris Club agreed to to suspend the payments until the end of the year 2023. read more
“This will improve foreign currency cash flow for Ukraine, but alone it probably won’t be enough to stabilize foreign exchange reserves,” said Carlos de Sousa, emerging markets debt portfolio manager at Vontobel Asset Management.
Ukraine’s foreign exchange reserves fell to $22.4 billion at the end of July from $28.1 billion in March.
A major restructuring is expected after the debt freeze, De Sousa said, as it is “unlikely” that Ukraine will regain market access in two years.
Ukraine completed a $15 billion debt restructuring in late 2015 following an economic crisis related to a Russian-backed insurgency in its industrial east. The deal left a large number of payments due annually between 2019 and 2027 and returned to international markets in 2017.
Running a $5 billion monthly budget deficit, Ukraine is heavily dependent on foreign financing from Western allies and multilateral lenders, including the International Monetary Fund (IMF) and the World Bank.
It has so far received $12.7 billion in loans and grants, Treasury Department data shows.
The United States said this week it would provide the Ukrainian government with an additional $4.5 billion, bringing its total budget support to $8.5 billion since the start of a so-called “special military operation.” Continue reading
Ukraine also intends to agree a $15-20 billion IMF program to shore up its economy, its central bank governor said, and the government expects to receive that help before the end of the year. Continue reading
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Reporting by Jorgelina do Rosario, Rodrigo Campos and Karin Strohecker; additional reporting by Anna Pruchnicka in Gdansk and David Ljunggren in Ottawa; Editing by Alexander Smith, Matthew Lewis, Mark Potter, Kirsten Donovan
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