Bondholders to Push Ukraine to Resume Debt Payments After Hiatus
Ukraine’s lenders said Kyiv could wait to pay them back after Russian troops stormed into the country two years ago. Now, their patience is starting to run out.
A group of foreign bondholders including BlackRock and Pimco plans to press Ukraine to start paying interest on its debt again as soon as next year, according to people familiar with the matter.
The group, which holds around a fifth of Ukraine’s $20 billion of outstanding Eurobonds, recently formed a committee and hired lawyers at Weil Gotshal & Manges and bankers from PJT Partners to negotiate on its behalf.
The group wants Kyiv, which is fresh off clinching roughly $60 billion in U.S. aid, to strike a deal in which it would resume payments in exchange for forgiveness of a big chunk of the country’s outstanding debt. Some bondholders in the group have discussed the plans with senior officials in Kyiv.
A spokesman for the bondholder group said it “looks forward to engaging constructively to assist with Ukraine’s sovereign debt.”
Ukraine is preparing to start talks with the bondholders this month, and Kyiv’s advisers are working to get the U.S. and other governments on board.
That approval isn’t guaranteed. The U.S. and its allies are concerned that taxpayers’ money will wind up in bondholders’ hands if Ukraine resumes any type of debt service. The countries agreed to give Ukraine a debt holiday on roughly $4 billion of their own loans, until 2027, and have voiced concerns that bondholders could start to be repaid ahead of them.
Without a deal, Ukraine could default after the bondholder-debt holiday ends in August, tarnishing its reputation with investors and complicating its ability to borrow more.
Officials from the International Monetary Fund and some members of the bondholder group met in April in Washington, D.C., where fund representatives indicated total debt relief from the private sector might need to be higher than the bond markets currently indicate. Ukraine’s bonds trade at between 25 and 35 cents on the dollar, according to AdvantageData, implying losses as high as $15 billion.
When the bondholders agreed to a two-year debt holiday in 2022, many thought the war would be over by now.
Even though the conflict is dragging on, lenders say they are optimistic that Ukraine’s finances are stabilizing. The country has clinched crucially needed aid from the U.S. and Europe and boosted its foreign-exchange reserves to a record high in April, while Ukraine’s central bank is considering a rollback of capital controls this year.
The bondholders hope to take in as much as $500 million in annual interest payments after agreeing to debt relief. They have signaled they could be willing to provide further relief later.
Some bondholders have suggested that frozen Russian assets in Europe and North America be used to help repay some of what they are owed.
The IMF and several G-7 countries so far aren’t on board with that idea but have indicated they could support smaller interest payments between now and 2027—at well below market rates. Ukraine would be reluctant to resume a normal debt-repayment schedule before 2027 at the earliest, some of the people said.
If a deal is reached, it could be financially rewarding for investors who bought Ukraine’s bonds at bargain prices.