When the war began, Ukraine’s creditors informed Kiev that there was no need to rush and that they could wait for the repayment of what was owed. Obviously, however, no one had predicted that this war would last more than two years and with an unknown time horizon. Now, their patience is running out.
A group of foreign bondholders, including BlackRock and Pimco, now plans to pressure Ukraine to start paying interest on its debt again next year, according to sources familiar with the matter who spoke to the WSJ.
These companies own about a fifth of Ukraine’s $20 billion in outstanding Eurobonds. They recently appointed a committee that hired lawyers from Weil Gotshal & Manges and bankers from PJT Partners to negotiate on behalf of the bondholders.
That group is pushing for Kiev, which has begun to enjoy some $60 billion in U.S. aid, to strike a deal in which it will resume payments in exchange for writing off much of the country’s outstanding debt. Some of those bondholders have already discussed their plans with senior officials in Kiev, according to the same sources.
Ukraine is preparing to start talks with bondholders this month, and Kiev’s advisers are seeking the involvement of the US and other governments.
Response, however, is not guaranteed. The US and its allies worry that their taxpayers’ money will end up in the hands of creditors if Ukraine starts any debt servicing.
The countries agreed to give Ukraine a grace period on about $4 billion of their own loans until 2027, and have raised concerns that bondholders could start being repaid before they do.
Recovery
Ukraine’s economy showed signs of growth in 2023.
Without a deal, Ukraine could default after the grace period expires in August, tarnishing its reputation with investors and complicating its borrowing capacity.
IMF officials and some members of the group of bondholders met in April in Washington, where their representatives said overall debt relief from the private sector may need to be higher than bond markets currently indicate.
Ukrainian bonds are trading between 25 and 35 cents on the dollar, according to AdvantageData, suggesting losses of up to $15 billion.
When bondholders agreed to a two-year grace period in 2022, many believed the war would be over by then.
Even as the conflict drags on, lenders appear optimistic that Ukraine’s finances are improving.
The country has secured critical aid from the US and Europe and boosted its foreign reserves to a record high in April, while Ukraine’s central bank is considering lifting capital controls this year.
Bondholders hope to receive up to $500 million in annual interest payments after agreeing to debt relief.
They have indicated that they might be willing to provide further relief at a later date.
Ukraine’s stocks at record levels
Foreign aid boosted Ukraine’s foreign exchange reserves/
Some bondholders have suggested using frozen Russian assets in Europe and North America to help pay off some of the debt.
The IMF and several G7 countries so far don’t agree with that idea, but have said they could support lower interest payments between now and 2027—well below market rates.
Ukraine would be reluctant to resume a normal debt repayment schedule before 2027 at the earliest, some of the sources said.
If a deal is reached, it could be financially rewarding for investors who bought Ukraine’s bonds at bargain prices.
SOURCE: ot.gr
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