Ukraine’s debt rework derailed with little time left
London — Ukraine says it has not been able to reach an agreement with a group of bondholders over restructuring $2bn of international debt during formal talks, raising the spectre that the war-torn country might slip into default.
An agreement with holders of international bonds that allowed Ukraine to suspend payments after Russia’s invasion of the country in 2022 ends in August.
Ukraine’s finance minister Serhiy Marchenko said talks would continue and he expected the government to reach an agreement by August 1.
Still, the country’s dollar-denominated eurobonds fell by as much as 1.5c by 8am GMT, with near-term maturities trading at deeply distressed levels between 25c and 30c on the dollar.
Formal talks with bondholders have been under way for nearly two weeks, seeking to restructure the debt in order to retain access to international markets while meeting the IMF demands to restructure.
However, the government’s proposal and a counter-proposal by bondholders showed large disparities between what the parties expected a restructuring to look like.
"Although Ukraine and the ad hoc creditor committee did not come to an agreement on restructuring terms during the consultation period, they will continue engagement and constructive discussions through their respective advisors," the government said in a statement, adding it would also continue bilateral discussions with other investors.
Marchenko said the country’s economy was a "fragile balance" that hinged on consistent and substantial support from its partners. "Timely debt restructuring is a critical part of this support," he said. "Strong armies must be underpinned by strong economies to win wars."
Bondholders said the government’s proposal had demanded a write down that was "significantly in excess of market expectation" which was consistent with a 20% "haircut".
The proposal would "risk substantial damage to Ukraine’s future investor base and core objective of re-accessing capital markets at the earliest opportunity", they said.
Ukraine could seek to extend the payment suspension beyond August, but had wanted the more lasting solution of a full debt rework.
Reuters