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(Bloomberg) — Ukrainian officials are considering the option of a debt restructuring as financing functions for the war-torn country are likely to run out, according to three other people familiar with the talks.
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Several scenarios are taking place and a resolution is not expected before the end of the summer, according to two of the people, who asked not to be known because the conversations are private. Ukraine has time until at least Sept. 1, when it will face a total purchase and interest bills of $1400 million, according to Bloomberg calculations.
Politicians in Kyiv are struggling to make the budget paintings as the country’s military postpones Russia’s invasion, which destroyed cities, crippled the country’s grain exports and displaced more than 10 million people.
The International Monetary Fund provides recommendations and research on Ukraine’s monetary and debt situation, according to two of the people. One of the features Ukraine is contemplating is the so-called consent request, a request from the issuer for the approval of bondholders to replace the terms. of the securities issued, according to the people. Another is to use Russia’s frozen assets as collateral, the legal viability of such a concept is unclear, they said.
The IMF has been in contact with the Ukrainian government since the invasion began last February and continues to do so, an IMF spokesman said, without commenting directly on questions about the debt restructuring option.
Kyiv’s Finance Ministry declined to comment.
In early March, the IMF approved a $1400 million emergency loan to Ukraine, canceling the country’s existing stand-by arrangement with the fund, which remained $2200 million of the initial $5 billion in 2020.
Funding problems
The negotiations underscore the Ukrainian government’s purpose of staying smart with global investors, especially to fund the country’s post-war reconstruction.
Restructuring Ukraine’s obligations to reduce its debt burden would ensure that investment in humanitarian aid and defense from key allies is not channeled to pay bondholders.
Ukrainian bonds in dollars and euros are trading below grades that indicate a threat of misery and restructuring. Bonds maturing in September are trading at more than 40% of face value, according to data compiled through Bloomberg.
However, Ukraine has said it is committed to servicing its external debt.
More than 4 months after Russia invaded Ukraine, triggering major fighting that left thousands dead and a quarter of Ukraine’s population displaced from their homes, the country’s budget is under pressure as its main backer, Ukraine’s central bank, sounds the alarm about the limits of its ability. to buy sovereign debt. The economic fallout has tested the investment of everything from pensions to military operations.
The central bank estimates that Ukraine’s economy may contract by at least 30% this year as hryvnia comes under increasing pressure. The financial authority raised its key interest rate from 10% to 25% at its last meeting on June 3 for the currency.
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