CashNews.co
Stay informed with free updates
Simply sign up to the War in Ukraine myFT Digest — delivered directly to your inbox.
Ukraine has secured relief on more than $20bn of debt from private international bondholders, boosting Kyiv’s race to finance an intensifying war effort against Russia.
Almost all of Ukraine’s bondholders voted for a deal that will write down the face value of their debt by more than a third and free up $11bn for the country’s finances over the next three years through reduced interest payments, Ukraine’s finance ministry said on Wednesday.
President Volodymyr Zelenskyy’s government has negotiated one of the fastest and biggest sovereign debt workouts in modern history over the past four months, even as Kyiv pulled off an audacious counter-invasion of Russia and pushed western backers for more military aid.
Bondholders had granted a two-year suspension of payments after Russia’s invasion in February 2022. But Ukraine needed deeper relief on the bonds in order to keep IMF bailout loans flowing and to eventually restore access to private financing.
Ukraine’s budget deficit has surged this year to finance its military operations as Russia has stepped up attacks on Ukrainian cities and infrastructure.
“This is an important step on Ukraine’s path to restoring long-term economic stability and will enable our swifter re-entry to international markets once the security situation improves,” Sergii Marchenko, the Ukrainian finance minister, said on Wednesday.
The restructuring will reduce economic value of the debt by about 60 per cent, with Ukraine resuming interest payments at a much reduced level after the suspension, which officially expired this month.
This will include bondholders directly writing off 37 per cent of their claim. The “haircut” could lessen to 25 per cent if Ukraine’s GDP beats IMF targets, set for 2028.
Ukraine will resume interest payments at 1.75 per cent, rising to 4.5 per cent in 2026 and eventually to 7.75 per cent.
A key test will come in 2027, when Ukraine’s official creditors are set to restructure their own debts at the end of Kyiv’s current IMF programme.
Ukraine is lobbying for more official financial support to backstop its war effort, on top of nearly $90bn raised since Russia invaded in 2022. This has includes calls for loans to be funded by the proceeds of interest paid on Russia’s sanctioned central bank reserve assets.
Kyiv is set to record a $43bn deficit this year to cover higher military spending amid delays to western aid earlier in the year.
Ukraine will need to cover a budget gap of $35bn next year, including a $12bn planned increase in budgeted military spending, Denys Shmyhal, the prime minister, said this month.
Ukraine last restructured its sovereign debt in 2015, when bondholders took losses of a fifth in the economic fallout from Russia’s annexation of Crimea.
Ukraine also still has to negotiate a separate restructuring of $2.6bn in securities that payouts to growth, which it originally issued in the 2015 restructuring.
Zelenskyy’s government said this week that it will suspend payments on the warrants from May next year, when a payout worth hundred of millions of US dollars loomed.