London: UkraineU.S. creditors this week voted on a government proposal to postpone payments on the war-torn country’s international bonds for 24 months as Kyiv hopes to clear a $20 billion messy default.
Bondholders have until 5 p.m. New York time (2100 GMT) on Tuesday to decide whether to back or vote on the proposal by Ukraine’s government, which faces a $5 billion monthly financing gap and liquidity pressures. Used to be. RussiaThe invasion on 24 February. Time is precious: The country has a $1 billion bond maturing on September 1.
A person familiar with Ukraine’s thinking said creditors are likely to wait relatively close to the deadline to vote. The person said investors are expected to support the loan staycation.
When announcing his proposal, the Finance Minister of Ukraine Sergei Marchenko said it has received “clear signs of support” from some of the world’s largest investment funds, including BlackRock, Fidelity, Amia Capital and Gemsstock.
Creditors to Ukravtodor and Ukrenergo, two state-owned firms that have government guarantees on their loans, also have until August 9 to vote on a sovereign-like plan.
Is this a default?
A two-year moratorium on external debt payments would allow Ukraine to avoid contractual or legal default, as any amendments to the bond’s terms would favor creditors, said Rodrigo Olivares-Caminal, professor of banking and finance law at Queen Mary’s University. Londontold Reuters.
However, creditors may ask whether a default insurance known as a credit default swap (CDS) should be initiated, as a deferment of payment may be considered a credit event by the International Swaps and Derivatives Association (ISDA).
According to data from the Depository Trust and Clearing Corporation (DTCC) on CDS, investors are sitting on about $221 million in insurance on Ukraine’s debt.
Credit rating agencies may also classify this as “selective default” or “default”.
“A contractual default, a credit event and a credit rating default are three different related concepts,” Olivares-Caminal said. ,lifting Neither of the three means that the other two will trigger.”
While investors are expected to roll back the freeze, it is unclear whether the country may still need debt restructuring in the medium term.
“It’s just a pause button – we don’t know what shape Ukraine will be in a few months or a few years down the line,” said luis picoto, emerging market economist at BNP Paribas in London. “Investors are already preparing for a debt restructuring.”
Bonds denominated in dollars trade in deep trouble, with some as low as 17 cents a dollar.
The war-stricken, which Russia calls a “special military operation”, will see Ukraine face a 35%-45% economic contraction in 2022, according to government and analysts’ estimates, and rely heavily on foreign funding from its Western partners. Is.
Ukraine aims to settle for $15 billion-$20 billion program International Monetary Fund before the end of the year.
Ukraine restructured its debt in 2015 after an economic crisis linked to a Russia-backed insurgency in its industrial east. The deal left it with a large number of payments annually between 2019 and 2027, and it returned to international markets in 2017 with the issuance of $3 billion of hard-currency debt.
For the foreign debt freeze scheme to be successful, the so-called solicitation requires the support of two-thirds of investors and holders of at least 50% of each note in 13 Eurobonds maturing from 2022 to 2033.
The government launched a separate proposal on its $2.6 billion of outstanding GDP warrants, a derivative security that triggers payments linked to its economic growth.
In late July, Ukraine’s state-energy firm Naftogaz became the first Ukrainian government entity to default since the start of the Russian offensive. The bonds of Naftogaz are not guaranteed by the sovereign.
Bondholders have until 5 p.m. New York time (2100 GMT) on Tuesday to decide whether to back or vote on the proposal by Ukraine’s government, which faces a $5 billion monthly financing gap and liquidity pressures. Used to be. RussiaThe invasion on 24 February. Time is precious: The country has a $1 billion bond maturing on September 1.
A person familiar with Ukraine’s thinking said creditors are likely to wait relatively close to the deadline to vote. The person said investors are expected to support the loan staycation.
When announcing his proposal, the Finance Minister of Ukraine Sergei Marchenko said it has received “clear signs of support” from some of the world’s largest investment funds, including BlackRock, Fidelity, Amia Capital and Gemsstock.
Creditors to Ukravtodor and Ukrenergo, two state-owned firms that have government guarantees on their loans, also have until August 9 to vote on a sovereign-like plan.
Is this a default?
A two-year moratorium on external debt payments would allow Ukraine to avoid contractual or legal default, as any amendments to the bond’s terms would favor creditors, said Rodrigo Olivares-Caminal, professor of banking and finance law at Queen Mary’s University. Londontold Reuters.
However, creditors may ask whether a default insurance known as a credit default swap (CDS) should be initiated, as a deferment of payment may be considered a credit event by the International Swaps and Derivatives Association (ISDA).
According to data from the Depository Trust and Clearing Corporation (DTCC) on CDS, investors are sitting on about $221 million in insurance on Ukraine’s debt.
Credit rating agencies may also classify this as “selective default” or “default”.
“A contractual default, a credit event and a credit rating default are three different related concepts,” Olivares-Caminal said. ,lifting Neither of the three means that the other two will trigger.”
While investors are expected to roll back the freeze, it is unclear whether the country may still need debt restructuring in the medium term.
“It’s just a pause button – we don’t know what shape Ukraine will be in a few months or a few years down the line,” said luis picoto, emerging market economist at BNP Paribas in London. “Investors are already preparing for a debt restructuring.”
Bonds denominated in dollars trade in deep trouble, with some as low as 17 cents a dollar.
The war-stricken, which Russia calls a “special military operation”, will see Ukraine face a 35%-45% economic contraction in 2022, according to government and analysts’ estimates, and rely heavily on foreign funding from its Western partners. Is.
Ukraine aims to settle for $15 billion-$20 billion program International Monetary Fund before the end of the year.
Ukraine restructured its debt in 2015 after an economic crisis linked to a Russia-backed insurgency in its industrial east. The deal left it with a large number of payments annually between 2019 and 2027, and it returned to international markets in 2017 with the issuance of $3 billion of hard-currency debt.
For the foreign debt freeze scheme to be successful, the so-called solicitation requires the support of two-thirds of investors and holders of at least 50% of each note in 13 Eurobonds maturing from 2022 to 2033.
The government launched a separate proposal on its $2.6 billion of outstanding GDP warrants, a derivative security that triggers payments linked to its economic growth.
In late July, Ukraine’s state-energy firm Naftogaz became the first Ukrainian government entity to default since the start of the Russian offensive. The bonds of Naftogaz are not guaranteed by the sovereign.