Ukraine reaches deal with international creditors to restructure bond debt

The bondholders’ committee accepted nominal losses of 37% of its assets on 13 bonds and waived claims worth $8.67 billion, according to a statement on the terms of the deal.

Ukraine expects to save $11.4 billion over the next three years through a combination of lower coupons and maturity extensions.

“After the completion of this restructuring, Ukraine will also be able to return to the market as soon as possible, once the security situation stabilizes, which will make it possible to finance the rapid recovery and reconstruction of our country,” said Finance Minister Serhiy Marchenko.

The agreement in principle was reached with the creditors’ committee, which includes Amundi SA, BlackRock Inc and Amia Capital LLP, as well as other investors who together hold approximately 25% of the bonds. At least two-thirds of all bondholders must approve the deal to complete the debt restructuring.

According to Interfax-Ukraine, Ukraine’s agreements in principle with the special committee of holders of its approximately $20 billion Eurobonds provide for the replacement of 40% of their total amount plus accrued interest with four issues of Eurobonds (A bonds) maturing in 2029-2036 and 23% with four issues of special bonds (B bonds) maturing in 2030-2036, some of which will be issued only if the required GDP level is reached in 2028.

According to the announcement of the Government of Ukraine on the Irish Stock Exchange on July 22, a fee of 1.25% of the amount of Eurobonds exchanged will be paid for participation in the exchange.

It is noted that the creditors’ committee represents holders of approximately 25% of the Eurobonds, and the exchange is also planned to include Ukravtodor’s Eurobonds for $700 million.

“We are restoring debt sustainability. Today we reached an agreement in principle with the Committee of Holders of Eurobonds of Ukraine. This is an important step in the debt restructuring process that will save $11.4 billion in debt service over the next few years. It will save $11.4 billion in servicing over the next three years and $22.75 billion by 2033,” Prime Minister Denys Shmyhal said on Telegram.

According to him, in this way Ukraine will be able to free resources for urgent needs: defense, social protection and reconstruction.

Earlier, it was reported that Ukraine imposed a freeze on foreign debt payments two years ago after Russia launched a full-scale invasion. This freeze expires on August 1 with the bonds’ coupon payment in 2026, and Kyiv needs to restructure the debt in accordance with the International Monetary Fund’s (IMF) requirements under a $15.6 billion program. According to the statement, both the IMF and the country’s bilateral creditors, including the United States and the Paris Club, have approved Ukraine’s proposals.

Ukrainian government and creditors have agreed to restructure the claims in two rounds - Bond A and Bond B - a structure similar to Zambia’s debt restructuring. Bond B acts as a future incentive for bondholders, offering higher payments if Ukraine’s nominal GDP growth in 2028 is 3% higher than the IMF forecast for that year. This one-off test will take place in 2029.

Coupon payments on the new bonds issued under the Bond A label will start in 2025 at a rate of 1.75% and reach 7.75%, while principal payments will start in 2029.

Earlier, Ukraine failed to reach an agreement with a group of bondholders to restructure its international debt, leading to speculation that the country may be on the verge of default. Ukraine’s FM Marchenko said negotiations are continuing and that the government expects to reach an agreement by August 1.

Formal talks with bondholders have been underway for nearly two weeks as Ukraine seeks to restructure its debt to maintain access to international markets while meeting IMF restructuring requirements.