The grace period is over. The world's largest asset managers are demanding that Ukraine, in the midst of a war with Russia, repay its debts. In 2022, they granted Ukraine a two-year moratorium on the repayment of some $20 billion (€18.7 billion) in government bonds, but it expires on August 1.
The holders of around 20% of these securities, the largest private creditors, formed a committee a few weeks ago to start negotiations with Kyiv. They include the world's largest asset manager, the American company BlackRock; France's Amundi, a subsidiary of Crédit Agricole and Europe's leading fund with €1.900 billion in assets under management; and Pimco, the world's leading bond fund.
Initial consultations, which lasted 12 days in early June, failed to produce an agreement. Kyiv offered its creditors a discount of 60% on the value of their securities, while the latter were only willing to agree to a maximum of 20%. The Ukrainian Finance Ministry, advised by Rothschild & Co., also planned to replace the existing bonds with new ones maturing in 2040 at the latest, with interest not exceeding 1% until 2027, before gradually rising again.
The restructuring comes at a delicate time for Ukraine, which desperately needs funding to ensure its defense and therefore its survival. The country currently spends $40 billion a year on its military needs, or 22% of its gross domestic product (GDP). This spending has increased fivefold since the start of the invasion on the part of Russia in February 2022. Ukraine still needs to find $37 billion to complete its 2024 budget, while its tax revenues will be lower than expected due to revised growth down to 3.5% instead of 4.6% for this year, following Russian bombing of half of the country's energy infrastructure.
IMF demands reforms
According to a source close to the negotiations, the restructuring is presented as an essential step in the search for new financing, and "if Ukraine does not take this step, it will be closing the door to new private investment."
To be sure, the country can count on a gigantic $50 billion (€46.5 billion) loan, approved by G7 leaders in mid-June, which will be repaid thanks to the interest generated by Russian assets tied up abroad. However, given the political uncertainties surrounding future support from the European Union and the US, Kyiv prefers to keep other options open.
The International Monetary Fund has made this restructuring a prerequisite for its support. In exchange for $15.6 billion – only $5.4 billion has been paid out – the institution is demanding certain reforms in the fight against corruption and tax collection, as well as control of public accounts and debt reduction. Ukraine is committed to reducing its debt to 82% of GDP by the end of 2028.
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