Ukraine Restructures Over $20 Billion Debt

By Marc Jones

LONDON (Reuters) – Ukraine announced on Wednesday that international bondholders had formally approved its plan to restructure over $20 billion of debt amid its ongoing war with Russia.

Kyiv reported that over 97% of its debt holders met the required deadline for approval, allowing the restructuring to proceed.

The plan will cut the face value of Ukraine’s international bonds by more than a third, aligning with requirements from the International Monetary Fund (IMF), which indicated a writedown was essential for sustainable debt levels.

Ukrainian Finance Minister Serhiy Marchenko described the finalization of the restructuring as a “crucial step,” ensuring budget stability to finance defense efforts and paving the way for long-term economic stability.

This marks Ukraine’s second debt restructuring in a decade, prompted by Russian aggression, with the first occurring in 2015 following Russia’s annexation of Crimea. The current restructuring needed the backing of at least two-thirds of bondholders, plus a simple majority in each bond series.

Negotiations took just four months and replaced a previous two-year bond payment moratorium granted to Ukraine in summer 2022, which is now expiring.

Yuriy Butsa, head of Ukraine’s debt agency, emphasized that this restructuring is not a result of unsustainable economic policies but rather a response to Russian aggression. He also noted it’s one of the fastest debt restructurings in history.

The Group of Creditors of Ukraine, consisting of bilateral lenders like Canada, France, and the U.S., welcomed the agreement, stating that its swift implementation illustrates significant support for Ukraine, providing substantial debt relief.

Under the terms of the deal, bondholders will accept a 37% writedown, or “haircut,” on the face value of their holdings, saving Ukraine $11.4 billion over the next three years in its current IMF program.

In exchange, bondholders will receive new bonds valued at 40 cents on the dollar, with interest payments beginning immediately. Rates will start at 1.75%, rising to 4.5% in 2026, 6% in 2027, and 7.75% from 2034. Additionally, bondholders will receive another bond worth 23 cents, which pays no interest until August 2027 but could increase if Ukraine’s economy exceeds IMF targets by 3% in 2028.

Trading of the new bonds is anticipated to begin on August 30, once restructuring details are finalized.

Despite this debt relief, Ukraine’s finances remain strained by the ongoing war. It is facing constant attacks from Russia and has recently launched a counter-offensive into Russia’s Kursk region.

The agreed restructuring only covers Ukraine’s international market bonds, amounting to $24 billion, which represents about 15% of its total debt exceeding $140 billion. Ukrainian officials have cautioned that additional funds may be needed to fill budget gaps.

Kyiv plans to restructure an additional $2.6 billion in GDP-linked warrants in the coming months, and expects that official creditors will formulate a relief plan for their loans next year.

The IMF and the core bondholders involved in the negotiations did not comment on the approval when contacted by Reuters.