Ukraine’s private creditors accept debt restructuring

BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/43

 Ukraine’s private creditors voted on October 14 to accept the debt restructuring negotiated earlier. Under the deal, creditors agreed to write down 20 % of the nominal value of Ukraine’s $18 billion debt. Loan payback times were also extended by a four-year moratorium on repayment of Ukraine’s debts to private creditors. Ukraine’s IMF programme assumes payments to private lenders can be reduced by $15 billion over the next four years. The restructuring as approved is not sufficient alone to fully meet this goal as it only provides $11.5 billion in debt relief in that time.

A $3-billion Ukrainian government bond held by Russia comes due on December 20. Russia says it expects the bond to be repaid in full at that time. Russia also notes that Ukraine’s latest deal with private creditors is inapplicable to the bond, as it was granted by a sovereign entity. The distinction is important as it governs whether the IMF can continue to release loan tranches to Ukraine. Even if Ukraine is in default on payments to private entities, IMF lending can continue. Default to a public entity, however, would mean suspension of the loan programme. Ultimately, the IMF board must decide on whether or not the bond is public debt. The bond was issued in Ireland in December 2013 and purchased entirely by Russia’s National Welfare Fund.

After approval of the debt restructuring, the international credit ratings agency Standard & Poor’s raised Ukraine’s foreign sovereign debt rating to B-, which, while still considered speculative grade, was an improvement from the earlier rating of Selective Default (SD).

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