Ukraine has secured preliminary agreement from government creditors and bondholders to suspend debt repayments from August 1 until at least the end of 2023 as it struggles to close a deficit budget of $5 billion per month.
Bilateral lenders including Germany, UK and US on Wednesday said payments would be suspended from next month and they would “strongly encourage” private bondholders to do the same.
At the same time, the Ukrainian government said he would invite holders of Eurobonds and other domestic debt instruments to agree to similar terms. He said he has already received “explicit indications of support” from a group of institutional investors including BlackRock, Fidelity International, Amia Capital, Gemsstock and others.
Official creditors said the suspension of payments would provide “substantial support to the Ukrainian government and people” as the country “defends itself against Russia’s unwarranted, unprovoked and unlawful war of aggression.”
The group of creditors includes Canada, France, Germany, Japan, the United Kingdom and the United States. They specified that the suspension of repayments would last until the end of 2023 “with the possibility of an additional year”. A spokesperson declined to say what value of refunds would be suspended.
JPMorgan said Kyiv had asked it to seek consent from private investors to suspend principal and interest repayments on Eurobonds and GDP-linked warrants. Analysts at Dragon Capital in Kyiv said suspending these payments over two years would save the government about $6 billion.
“This is a positive announcement from Kyiv,” said Simon Quijano-Evans of Gemcorp Capital Management. “It puts the ball on the side of the bondholders and engages them in the process. Bondholders have made it clear to the government that the government should decide what is best and bondholders will follow suit.
This decision marks a U-turn for Kyiv. Since Russia’s full-scale invasion began on February 24, it has insisted on fully fulfilling its obligations to maintain international investor confidence and market access, despite pressure from some official creditors to delay payments.
The IMF said last week it expected Kyiv to continue paying down its debts and called on donor countries to provide more support, preferably in the form of grants rather than loans.
Ukraine has paid some $1 billion in repayments and interest to outside creditors since February, while appealing to its allies for financial assistance.
The creditor countries’ statement said: “In these exceptional circumstances, and recognizing Ukraine’s exemplary debt servicing record to date, members of Ukraine’s Creditors Group support this consent solicitation and strongly encourage bondholders to consent to Ukraine’s request.” .
Additional reporting by Mark Rachkevych in Kyiv