Ukraine Extends Deadline for $20 Billion Debt Restructuring Deal

Ukraine has extended the deadline for international bondholders to support its $20 billion debt restructuring plan. The Finance Ministry announced the extension due to technical difficulties encountered by some creditors in submitting their participation instructions.

The new early consent deadline is set for August 27, 2024, at 5:00 p.m. New York time. This extension allows all bondholders who back the deal to receive the incentive payment, known as a "consent fee."

For the restructuring to proceed, it requires approval from at least two-thirds of the overall bondholders and a simple majority for each individual bond series. The plan aims to reduce Ukraine's bonded debt by more than a third, bringing it to a level considered sustainable by the International Monetary Fund (IMF) and major Western government donors.

The proposed restructuring includes:

• A 37% reduction in the face value of bonds
• Immediate restoration of interest payments, starting at 1.75%
• Gradual increase in interest rates:
  • 4.5% from 2026
  • 6% from 2027
  • 7.75% from 2034
• A second bond worth 23 cents, with potential value increase based on economic performance

This deal is crucial for Ukraine's financial stability, as it would save nearly $11.5 billion over the next three years, aligning with the duration of its current IMF program. The urgency of the negotiations is partly due to the expiration of a two-year debt payment moratorium at the end of August 2024.

"Ukraine understands that some holders may be facing technical issues in delivering their participation instructions through their custodians and clearing systems."

The ad hoc creditor committee, which negotiated the deal with the government, supports the deadline extension, believing it will maximize participation and increase the likelihood of success.

It's worth noting that Ukraine's total external debt as of 2023 was approximately $130 billion, with its GDP estimated at $161 billion. The country has faced several economic challenges since joining the IMF in 1992, including crises in 1998 and 2008.

The concept of debt restructuring has a long history, dating back to ancient Greece. Modern sovereign debt restructuring became more common after World War II, with the formation of the Paris Club in 1956 to coordinate such efforts.

If the restructuring plan fails to gain sufficient support, Ukraine may need to revise the deal or implement a temporary solution, such as extending the moratorium. The success of this restructuring is vital for Ukraine's continued access to international financial support and its economic recovery efforts.