The Budget Committee proposes to suspend payments on external debt until the restructuring is completed

The Budget Committee of the Verkhovna Rada recommended that parliament adopt as a basis and in general bill No. 11396-1, which provides for emergency measures to manage public debt and gives the government the right to suspend payments on external debt until the completion of restructuring negotiations.

According to her, bill No. 11396-1 contains two key provisions:

The first is the inclusion of Ukravtodor’s debt in the state debt. The government will be able to take the state-guaranteed debt of the former Ukravtodor into the “perimeter” of the state debt and carry out its restructuring. We are talking about a series of 2021 Eurobonds in the amount of US$700 million plus interest. So far, the Recovery Agency is not able to independently carry out such a restructuring, which creates a risk for the state budget.

The second is the suspension of payments on external debt. The bill gives the government the right to temporarily suspend payments on external public debt if necessary. This applies to cases where a formal agreement on restructuring is not reached until August 10, when coupon payments on one of the government Eurobond issues due in 2026 are due.

Podlasa noted that a similar approach had already been used in 2015, when Ukraine adopted the law “On the specifics of transactions with state, state-guaranteed debt and local debt” in May, reached agreements in principle with investors at the end of August and completed the operation in November.

“The IMF has routinely expressed support for this bill, since it will help strengthen Ukraine’s debt sustainability – a commitment that we assumed in the Memorandum with the IMF,” she said.

Podlasa emphasized that the committee will ask the Verkhovna Rada to support this project at the next plenary meeting, since it is an important element of the restructuring, which will save more than $10 billion on payments for servicing and repayment of sovereign Eurobonds by the end of 2027.

Ukraine is negotiating partial write-off of national debt

The Ministry of Finance of Ukraine continues negotiations on restructuring with Eurobond holders, in particular on the partial write-off of public debt. Negotiations will soon be public.

It is critical for Ukraine to secure a debt restructuring before the two-year payment freeze agreed upon by holders of $20 billion in outstanding international bonds, with investors expected to receive $500 million in interest payments annually from Ukraine, ends in August.

Note that the market has been awaiting a proposal from the Ministry of Finance on a new restructuring of commercial debt on Eurobonds since mid-spring 2024. Their owners have already formed a special committee on the eve of the upcoming negotiations.