Ukraine enters technical default
Ukraine announced in July that it was preparing an agreement with a group of bondholders to reschedule repayments of nearly $20 billion in foreign debt. A provisionally agreed restructuring agreement was announced on 22 July and is expected to be formally approved by bondholders in the coming weeks.
Prompted by Russia's 2022 full-scale invasion, it is Ukraine's second such rework in a decade following a similar deal after the 2014 invasion of Crimea.
The move was necessary as today (1 August 2024), the two-year moratorium on repayments expired, and so the law authorising the suspension, signed by the President, effectively allows to conduct an organised default.
Reuters pointed out out that the new rule facilitates a 37% nominal haircut on Ukraine's outstanding international bonds, saving Kyiv $11.4 billion in payments over the next three years - the duration of the country's programme with the International Monetary Fund (IMF), according to government statements.
Ukraine also owes a $34 million coupon payment on its 2026 Eurobond due on 1 August. Although there is a a 10-day grace period, zelensky's signature means, and the government explicitly stated, that this amount will not be paid.
But a short-term default would have a less significant impact on its long-term borrowing prospects than a default with no deal in sight, Reuters noted.
Ukraine's finance minister Sehriy Marchenko earlier hailed the deal with bondholders. But he also told RBC-Ukraine outlet that the negotiations were not easy, citing "significant differences" in the assessment of the situation Ukraine finds itself in.
This development formally marks a technical default for Ukraine, which is not a surprise in itself, as the country's economic performance was severely hit by the Russian invasion, and it could not operate without external help.
