Ukraine's overseas creditors backed its request for a two-year freeze on payments on almost $20 billion of international bonds, a move that will allow the country to avoid a messy debt default, according to a regulatory filing on Wednesday.
With no sign of peace or a ceasefire on the horizon nearly six months after Russia's invasion began, holders of around 75% of the outstanding total agreed to Kyiv's proposal, documents showed.
The prime minister Denys Shmyhal said that Ukraine will save $6 billion on payments. These funds will help us maintain macrofinancial stability, strengthen the Ukrainian economy's sustainability and improve the power of our army. The solicitation needed approval from holders of at least two-thirds of the total and more than 50% of each issue.
Stuart Culverhouse, chief economist at London-based research firm Tellimer said that the two-year debt freeze makes sense because even if the war ends soon, Ukraine's situation is not going to improve overnight. Creditors were surprised that the country hasn't been current on the bonds until now. BlackRock Inc, Fidelity International, Amia Capital and Gemsstock Ltd are some of the biggest holders of Ukrainian debt, whose market value has slumped by more than 80% since the build-up of Russian troops on its borders began late in 2021.
A consent solicitation approved by creditors allows changes to about $2.6 billion of GDP warrants, a derivative security that triggers payments linked to a country's gross domestic product.
The creditors of Ukravtodor and Ukrenergo, two state-owned firms that have government guarantees on their debt, have approved separate solicitations similar to the one proposed by the sovereign.
With the United States, Britain and Japan facing an estimated economic contraction of 45% in 2022, a group of governments in the Paris Club agreed to suspend payments until the end of 2023, and a group of governments in the Paris Club agreed to suspend payments until the end of 2023.
Carlos de Sousa, emerging markets debt portfolio manager at Vontobel Asset Management said that this will improve the foreign currency cash flow for Ukraine, but by itself it's unlikely to be enough to stabilize FX reserves.
Ukraine's international reserves fell from $28.1 billion in March to $22.4 billion at the end of July.
After the debt freeze, De Sousa said that it is not certain that Ukraine will be able to regain market access in the next two years.
With a monthly fiscal shortfall of $5 billion, Ukraine is heavily dependent on foreign funding from Western allies and multilateral lenders, including the International Monetary Fund IMF and the World Bank.
The Finance Ministry data shows that it has received $12.7 billion in loans and grants.
Since Moscow began what it calls a military operation, the United States has brought in additional $4.5 billion for the Ukrainian government, bringing its total budgetary support to $8.5 billion.
Ukraine wants to agree a $15 billion -- $20 billion IMF programme to shore up its economy, and the central bank governor said that the government expects to receive this assistance before the end of the year.