Ukraine has initiated discussions with major investors to explore options for restructuring the country’s $20 billion international debt and the potential for raising new financing, according to unnamed sources familiar with the matter. The head of Ukraine’s debt management office, Yuri Butsa, has been leading these discussions and seeking feedback from investors.
While talks with bondholders were originally scheduled to begin early next year, concerns about waning international support for Ukraine and the ongoing conflict have accelerated the debt negotiations. In late September, the US passed a funding bill that did not include aid for Kyiv, further highlighting the need for a resolution.
Following Russia’s invasion in February, Ukraine’s economy and finances were severely impacted, leading to a sovereign default. As a result, bondholders agreed to a two-year payment freeze until August 2022. Most of Ukraine’s bilateral lenders have also suspended repayment obligations until 2027.
According to an anonymous source, Butsa has been holding direct meetings with creditors, with the aim of tapping into markets early to strengthen access to financing while the International Monetary Fund (IMF) program runs until 2027.
The discussions with bondholders are currently informal, and a creditor committee has yet to be formed. Both Ukraine’s finance ministry and debt management office have declined to comment at this time.
As part of the debt restructuring, Ukraine plans to issue new bonds to existing holders once an agreement on losses from existing debt has been reached. However, investors have expressed a desire for some form of guarantee or backstop from Ukraine’s partners to ensure the success of the deal due to the inherent risk of lending to a nation at war.
A second source familiar with the situation suggested that credit enhancements, such as guarantees, could help reduce the default risk and borrowing costs for Ukraine. However, obtaining credit enhancements may be challenging given the significant amount of public money that has already been invested in the country.
In addition to the debt restructuring, Ukraine is also considering options for raising fresh additional financing. These options include collateralized and guaranteed structures that could potentially facilitate financing for the country. Ukraine’s international partners, such as multilateral institutions or individual countries, could provide collateral for new bonds, similar to the Brady bonds issued by Latin American countries in the late 1980s, which were backed by US Treasuries.
The ability of Ukraine to raise fresh funds from capital markets remains uncertain, as IMF programs typically do not allow countries to seek non-concessional funding during a debt overhaul. The willingness of large asset managers to lend more money to Ukraine is also unknown. The first source highlighted that the real challenge lies in ensuring that new money commitments from private-sector creditors actually materialize. According to the same source, Ukraine requires more than $1 billion per year to meet its financing needs.
The discussions between Ukraine and its investors are critical for the country’s economic stability and the successful implementation of the IMF program. The outcome of these talks will shape Ukraine’s ability to restructure its debt and secure new financing, which are essential for its long-term financial health.
More detail via Reuters here… ( Image via Reuters )