Ukraine Executes One Of History’s Largest Debt Restructurings

Months after Russia’s invasion of Ukraine, Rothschild & Co provided Kyiv’s debt chief, Yuriy Butsa, with a crucial black folder detailing major sovereign debt restructurings over the past 30 years. This became essential reading for Butsa, who had not been involved in Ukraine’s 2015 debt restructuring following Russia’s annexation of Crimea but would soon need to utilize such expertise.

Ukraine Completes Major Debt Restructuring

Amid the economic turmoil caused by the ongoing war, Ukraine paused bond payments by August 2022. Last week, the country completed one of the largest and swiftest debt restructurings in history. This restructuring, involving over $20 billion in debt, is surpassed only by those of Argentina and Greece. It is expected to save Kyiv $11.4 billion over the next three years, a critical boost for the war effort and the International Monetary Fund (IMF) program.

EBRD’s Tuerkner on Ukraine’s Stability

“A stable situation where no more question marks are out there can only benefit Ukraine,” said Arvid Tuerkner, managing director for Ukraine and Moldova at the European Bank for Reconstruction and Development.

Paris Meetings Lead to Debt Deal

The process of reaching an agreement with bondholders involved significant negotiations. Initial talks in June had faltered as the bondholders’ core committee found Ukraine’s proposed writedown far beyond the anticipated 20%, which risked damaging relations.

With the August 2022 payment moratorium approaching, Rothschild organized urgent face-to-face meetings in Paris. Representatives from top asset management firms and their advisers met with Butsa and the Rothschild team. Despite the ongoing distance between the sides, all parties were hopeful for a deal.

IMF’s Role in Finalizing Restructuring

The IMF had recently updated its projections, reflecting a worsening economic situation but providing a new basis for negotiations. Ukraine presented its proposal, and key bondholder groups made their demands. They requested immediate coupon payments, a path to higher principal recovery, and a simpler agreement.

IMF experts were available in Kyiv and Washington for intensive modeling of the proposed compromises. Their swift assistance proved crucial in overcoming obstacles.

Delays Due to IMF Policies and Frozen Assets

Issues surrounding the use of Russia’s frozen assets and new IMF policies related to wartime adjustments had delayed discussions. Butsa’s team and the IMF were adamant that the costly ‘GDP warrants’ from the 2015 restructuring should not be repeated. Instead, Ukraine offered a simpler GDP-linked bond, coupled with instant coupon payments starting at 1.75% and rising to 7.75%, which could be easily traded on main bond indexes.

Deal Finalized Despite Car Accident

As the details neared finalization, the atmosphere in Paris was optimistic. However, the drama continued when Butsa was involved in a minor car accident while returning from the Polish airport. Despite the interruption, the restructuring was announced as agreed in principle, with over 97% support from bondholders.

(INCLUDES INPUTS FROM ONLINE SOURCES)

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