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Ukraine’s international bondholders have formed a creditor committee ahead of a $20bn debt restructuring that Kyiv is aiming to negotiate by September, amid uncertainty over the arrival of funding to help in its war with Russia.
Bondholders organised the committee, a key step before beginning talks, “in response to a request from the government of Ukraine”, the committee said on Tuesday.
Volodymyr Zelenskyy’s government has signalled that it wants to agree debt relief before the August deadline on a two-year moratorium on payments, which bondholders granted to Ukraine in the early months of Russia’s invasion.
The restructuring, which affects about one-fifth of Ukraine’s external debt pile and could include state companies, is being launched as Kyiv faces huge uncertainty about when it will receive other western funds to help fight the war.
Western governments also disagree over whether or not Ukraine can access up to $330bn in Russian reserve assets frozen in the west for reconstruction — an issue that has already caused frustration among bondholders.
On Tuesday Janet Yellen, the US Treasury secretary, urged Congress to unlock more than $60bn in military and non-military support for Ukraine that has been delayed. G7 countries would continue talks on the frozen Russian assets this week, Yellen added.
Ukraine committed to conduct a private debt restructuring in 2024 when it requested further IMF bailout funds last year. The finance ministry said at the time that a restructuring would also have “the objective to restore Ukraine’s market access as early as practicable”.
The country’s official creditors have already extended their own debt payment moratorium to 2027, when Ukraine’s current IMF bailout ends, and signalled that they will restructure at that stage.
The IMF has said that Ukraine needs to limit its public debt levels to roughly four-fifths of GDP by 2028 and two-thirds by 2033.
Ukrainian bonds covered by the committee include $17bn in US dollar securities and €2.25bn in euro debt, with maturities ranging from this year to 2035. The names of members of the group have not been disclosed.
The bonds currently trade at highly distressed levels of about 25 to 30 cents per dollar of original face value.
Investment bank PJT Partners and law firm Weil, Gotshal and Manges have been appointed as financial and legal advisers to the committee.
Ukraine’s debt “remains unsustainable in the absence of a substantial debt restructuring”, said Evghenia Sleptsova, senior emerging-markets economist at Oxford Economics. But there is “exceptional uncertainty” around the process, given questions around US support and difficulties with making economic projections, she added.
Many bondholders say they accept the need for a restructuring this year given the economic damage caused by the war, and to allow Ukraine to return to global bond markets to raise new money relatively quickly.
However, some investors have argued that a debt restructuring this year would be difficult, given uncertainty over the war and question marks over when other promised international funding for Ukraine will arrive.
But other bondholders counter that alternatives to a restructuring, such as an extended moratorium or a default, are not palatable and would complicate debt talks down the road.
“When we agreed the moratorium in 2022, there was ability to pay but obviously a national need to preserve resources,” one bondholder said. “Now we know the debt is unsustainable, it doesn’t make sense to kick the can down the road.”