Ukrainian parliament permits govt to suspend national debt payments until Oct for restructuring
MOSCOW. July 18 (Interfax) - The Ukrainian parliament has granted the government the right to suspend payments on external public debt until October 1, if necessary.
The parliament passed the relevant government bill on Thursday, Ukrainian media quoted MP Yaroslav Zheleznyak as saying on Telegram.
"The government is also allowed to take [include in the restructuring] the state debt from Avtodor [now the Restoration Agency] ($700 million plus interest). The Restoration Agency will not be able to do the restructuring on its own," the MP said.
The Finance Ministry said on its website that the law that allows the government to decide on a suspension of payments on commercial state and state-guaranteed external debt instruments was a necessary technical decision.
"[The law] provides the government with flexibility ahead of reaching an agreement in principle with holders of commercial state and state-guaranteed external debt," it said.
In particular, one of the series of the outstanding Eurobonds due in 2026 has a scheduled coupon payment of $35 million on August 1. The adoption of the law will allow Ukraine to suspend payments on relevant instruments until the terms of its restructuring are agreed upon with investors and legally executed.
"Over the past two months, Ukraine has been actively negotiating with investors to restructure its external commercial state and state-guaranteed debt under the IMF program and with the support of the Group of Creditors of Ukraine. All parties are committed to reaching an agreement within the necessary timeframe," the ministry said.
The head of the parliamentary budget committee, Roksolana Pidlasa, had said the government would be able to exercise its right to suspend public debt payments if a formal restructuring agreement is not reached before August 10, when the coupon payments on one of the Eurobond issues due in 2026 are due.
A similar technical solution on the government's right to suspend public debt payments had already been exercised during restructuring in 2015. Ukraine adopted a law on the specifics of transactions with state, state-guaranteed debt and local debt in May that year. It reached agreements in principle with investors and at the end of August 2015 and announced the completion of the operation in November.
"The IMF has in the course of business expressed support for this bill, since it will help strengthen Ukraine's debt sustainability - a commitment that we took on in the memorandum with the IMF," Pidlasa said.
Ukraine and a committee of creditors held negotiations from June 3 to June 14 and exchanged proposals on restructuring, but were unable to reach an agreement, partly because terms proposed by commercial creditors for the IMF and a group of official creditors of Ukraine were unacceptable.
Finance Minister Sergei Marchenko said that as the end date for deferred payments on Eurobonds approaches, holders of these securities should be encouraged to prolong constructive negotiations, and their proposals should reflect more significant debt reduction in keeping with IMF parameters and the current macro-financial situation in Ukraine.
"We will continue productive negotiations with investors to resolve all existing differences. We are confident that a restructuring agreement can be reached in the coming weeks before the end of the current payment deferment," Marchenko said in mid-June.
On August 10, 2022, Ukraine received consent from the holders of 13 of its Eurobond issues worth an equivalent of $22.6 billion and two other Eurobond issues under state guarantees for around $1.5 billion to have interest and principal payments deferred for 24 months. That restructuring agreement did not envision debt write-off.
Ukraine's initial proposal this year included two restructuring options with a nominal discount of 25% to 60% depending on the country's recovery during the IMF program period, while creditors initially offered 20% and then agreed to 22.5%. Also, Eurobond holders are insisting on much higher interest rates than the Finance Ministry is proposing.