Ukraine’s creditors agree on two-year foreign debt freeze of $20bn – Reuters | Vette Leader

  • Ukraine says the move will save it $5 billion over two years
  • Creditors support a similar move for two state-owned companies and justify changes
  • Comprehensive post-freeze debt restructuring

LONDON/NEW YORK, Aug 10 (Reuters) – Ukraine’s foreign creditors have backed their request for a two-year freeze on payments on nearly $20 billion worth of international bonds, according to an official filing on Wednesday, a move that will allow the war-torn country to avoid a messy default.

With no sign of peace or a ceasefire in sight nearly six months after the Russian invasion began on February 24, bondholders have agreed to postpone government interest and principal payments on 13 Ukrainian government bonds maturing between 2022 and 2033.

Ukraine said it would save around $5 billion over the next 24 months by managing its dwindling financial resources.

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“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.”

BlackRock Inc (BLK.N), Fidelity International, Amia Capital and Gemsstock Ltd are among Ukraine’s largest debtors, whose values ​​have plummeted more than 80% since Russian troops began building up on its borders in late 2021.

“Ukraine has received and accepted consents of approximately 75% of the aggregate notional amount of the outstanding securities,” the filing reads. It required the consent of holders of at least two-thirds of all bonds and more than 50% of each outstanding issue, documents for obtaining consent showed.

A separate consent solicitation approved by creditors includes amendments to approximately $2.6 billion in so-called 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 on their debts, have also 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 prop up its economy, its central bank governor Kyrylo Shevchenko 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; Edited by Alexander Smith, Matthew Lewis and Mark Potter

Our standards: The Thomson Reuters Trust Principles.

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