Ukraine’s creditors agree 2-year freeze on $20 billion foreign debt

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  • Ukraine says move will save it $5 billion over two years
  • Creditors back similar move for 2 state-owned enterprises
  • Complete debt restructuring seen after the freeze

LONDON/NEW YORK, Aug 10 (Reuters) – Ukraine’s foreign creditors have backed its request for a two-year freeze on payments on nearly $20 billion in international obligations, a regulatory filing said on Wednesday, a ruling which will allow war-torn countries to avoid a disorderly default.

With no sign of peace or a ceasefire on the horizon nearly six months after the start of the Russian invasion, holders of about 75% of the remaining total have accepted Kyiv’s proposal, according to documents.

“Ukraine will save almost $6 billion on payments,” Prime Minister Denys Shmyhal said in a statement. “These funds will help us maintain macro-financial stability, strengthen the sustainability of the Ukrainian economy and improve the strength of our military.”

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The solicitation had to be approved by holders of at least two-thirds of the total and more than 50% of each issue.

“The two-year debt freeze makes sense because even if the war ends soon, Ukraine’s situation is not going to improve overnight,” said Stuart Culverhouse, chief economist at the firm. London studies Tellimer. “Creditors were even surprised that the country decided to be up to date on obligations so far.”

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BlackRock Inc (BLK.N), Fidelity International, Amia Capital and Gemsstock Ltd are among the top holders of Ukrainian debt, the market value of which has fallen more than 80% since the start of the Russian troop buildup on its borders in late 2021 . .

A separate but related consent solicitation approved by creditors allows for the modification of about $2.6 billion of GDP warrants, a derivative security that triggers payments linked to a country’s gross domestic product.

Creditors of Ukravtodor and Ukrenergo, two state-owned companies that benefit from government guarantees on their debt, have approved separate solicitations similar to the one proposed by the sovereign.

DEBT RELIEF

With Ukraine facing an estimated 45% economic contraction in 2022, bilateral creditors including the United States, Britain and Japan had also backed a delay in debt repayments and a group of governments in the Paris Club has agreed to suspend payments until the end of 2023. read more

“This will improve foreign exchange cash flow for Ukraine, but this alone is unlikely to be enough to stabilize foreign exchange reserves,” said Carlos de Sousa, portfolio manager of emerging market debt at Vontobel. Asset Management.

Ukraine’s international reserves fell from $28.1 billion in March to $22.4 billion at the end of July.

A full debt restructuring is expected after the debt freeze, De Sousa said, because it is “unlikely” Ukraine will be able to regain market access in two years.

Ukraine completed a $15 billion debt restructuring at the end of 2015 after an economic crisis linked to a Russian-backed insurgency in its industrial east. The deal left it with a large number of payments due each year between 2019 and 2027, and it returned to international markets in 2017.

With a monthly budget deficit of $5 billion, Ukraine is heavily dependent on foreign funding from Western allies and multilateral lenders, including the International Monetary Fund (IMF) and World Bank.

It has so far received $12.7 billion in loans and grants, according to Finance Department data.

The United States said this week it would provide an additional $4.5 billion to the Ukrainian government, bringing its total budget support to $8.5 billion since Moscow launched what it calls a “special military operation.” “. Read more

Ukraine is also aiming to agree a $15-20 billion IMF program to help shore up its economy, its central bank governor said, and the government expects to receive that assistance before the end of the year. Read more

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Reporting by Jorgelina do Rosario, Rodrigo Campos and Karin Strohecker; additional reporting by Anna Pruchnicka in Gdansk and David Ljunggren in Ottawa; Editing by Alexander Smith, Matthew Lewis, Mark Potter, Kirsten Donovan

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