Ukraine is preparing to present a proposal to international bondholders for restructuring its $20 billion debt by the beginning of May, two sources knowledgeable about the matter told Reuters on Monday.
Ukraine urgently needs to conclude a debt restructuring deal before the August expiration of a two-year payment freeze, a measure put in place due to the significant economic fallout from Russia’s 2022 war.
The proposal will initiate formal discussions and information exchange with bondholders, with the Ukrainian government aiming to reach a preliminary agreement by June.
Despite the ongoing conflict, Ukraine has been exploring plans to restructure its international debt and potentially secure additional financing since late 2023. The country’s financial struggles have been somewhat alleviated by a $60.8 billion security assistance package from the US House of Representatives.
The specifics of the restructuring remain uncertain due to the unpredictable nature of Ukraine’s war-torn economy and its ability to repay its debt.
Bondholders are hoping for new bonds that will start delivering interest payments immediately after the debt restructuring. However, Ukraine, which is struggling to stabilise its finances, might find it challenging to make payments to foreign bondholders.
In its debt restructuring efforts, Ukraine is contemplating the issuance of new bonds and possibly securing extra funds via collateralised and guaranteed bonds. This could entail Ukraine’s global partners backing the new bonds, akin to the Brady bonds of the late 1980s in Latin America.
In anticipation of formal talks, bondholders have established a temporary committee and enlisted legal and financial consultants. Ukraine must also tackle the restructuring of bonds from its state-owned firms like Naftogaz and Ukrenergo.
While most of Ukraine’s bilateral lenders have deferred repayment obligations until 2027, if Ukraine fails to reach an agreement with bondholders by the summer deadline, it may consider requesting a similar extension.
