Ukraine set to send $20 bn rework proposal to bondholders by early May

Ukraine is poised to send international bondholders a proposed plan to restructure its $20 billion in debt by early May, two sources familiar with the situation said.

Time is of the essence for Ukraine to securea debt rework agreement before a two-year payment freeze agreed with holders of its outstanding international bonds ends in August.
 

The freeze was struck after Russia's invasion of the country in February 2022 hit its economy hard.
 

Sharing a proposal with its bondholders is set to mark the starting point for formal talks, including holding detailed discussions and the exchange of privileged information.
 

One of the sources said Ukraine's government hoped to reach the outlines of an agreement in June at the latest.
 

Ukraine's finance ministry did not immediately respond to a request for comment on Sunday. The sources declined to be named due to the sensitivity of the issue.
 

The war-torn economy has been sounding out major investors since late 2023 over plans to restructure its international debt and the possibility of raising fresh financing, as previously reported by Reuters. But so far discussions have been held only informally.
 

The country has struggled to shore up its finances, though momentum has picked up after the U.S. House of Representatives on Saturday passed a legislative package that will provide Ukraine with security assistance of $60.8 billion.
 

It is unclear what a restructuring might look like as it involves an economy engulfed in a war whose outlook, fiscal position and ability to pay back its debt remain uncertain.
 

Bondholders are hoping to emerge from a debt rework with new bonds that would deliver interest payments from the start, according to the sources. However, paying foreign bondholders might be unpalatable for Kyiv, which is struggling to shore up its finances.
 

Ukraine is keen to have access to capital markets and would have to issue bonds as part of the debt restructure, but it could also raise fresh financing by selling collateralized and guaranteed bonds.
 

These could see Ukraine's international partners - either multilateral lenders or individual countries - provide collateral for the new bonds, akin to the so-called Brady bonds issued by Latin American countries in the late 1980s that were backed by U.S. Treasuries.
 

Bondholders announced on Tuesday that they had formed an ad hoc committee in anticipation of formal talks kicking off in the near future. They have appointed Weil, Gotshal & Manges as legal advisers and PJT Partners as financial advisers.
 

Ukraine also needs to address how to rework outstanding bonds at a number of its state-owned enterprises. State-gas company Naftogaz restructured its international bonds separately last year. The Financial Times reported that a group of bondholders did not want the international bonds of grid operator Ukrenergo to be included in a sovereign rework.
 

Most of Ukraine's bilateral lenders have suspended repayment obligations until 2027. Analysts expect Ukraine might opt to ask its bondholders for a matching extension if it fails to reach a deal with bondholders before the summer deadline.