21 Jul 2022 11:21

Deferral of Eurobond payments to help Ukraine save $2.5 bln over next 2 years - finance minister

MOSCOW. July 21 (Interfax) - The deferral of payments on Eurobonds will allow Ukraine to save $2.5 billion over the next two years, Ukrainian Finance Minister Serhiy Marchenko said.

"We were due to pay $1.4 billion in September alone. And, on the whole, it will be possible to save $2.5 billion for the budget within the next two years," Marchenko said during the national telethon on Wednesday evening.

Ukraine has offered its investors a deferral of payments on the principal amount of the loan and interests in 13 bond issues, the Ukrainian media quoted him as saying.

"The situation is turbulent. We need time for a respite," Marchenko said.

Once taxes on imports are reinstated, the Finance Ministry expects proceeds from customs duties to increase by 6 billion-7 billion hryvni a month, reaching 20 billion hryvni per month, he said.

According to the Finance Ministry, before endorsing the proposal to postpone payments on Eurobonds for two years and to amend the terms of GDP-linked warrants, Ukraine discussed these steps with a select group of its major creditors, including Amia Capital, BlackRock, Fidelity International (FIL), and Gemsstock.

"Pursuant to these discussions, Ukraine has received explicit indications of support for the proposals with respect to both its Eurobonds as well as GDP-linked securities from the aforementioned group of holders," the Ukrainian media quoted the Finance Ministry as saying in a press release on Wednesday evening.

These steps are intended to help maintain FX liquidity inside the country and mitigate the current monthly budget deficit of $5 billion, the ministry said.

"It has been a continuous challenge finding adequate funding resources for Ukraine to cover critical defense, social and humanitarian costs and to begin planning for reconstruction of the country," it said.

Ukraine's initiative to delay payments on Eurobonds and to amend the terms of GDP-linked warrants complements the announced intention of Ukraine's international partners within the G7 and the Paris Club to suspend debt service payments to Ukraine until the end of 2023 with the possibility of extending the suspension by another year, the ministry said.

"One of the objectives of Ukraine's liability management exercise is to achieve comparability of treatment of Ukraine's debt and simultaneous processes with all of Ukraine's creditors. In particular, this proposal has been supported by the G7 and Paris Club creditors as reflected in their July 20, 2022 statement," it said.

Since February 24, Ukraine has continued to honor its debt commitments as a responsible issuer on international capital markets, the ministry said.

The offer extended to private creditors has been the result of the discussions and the feedback received from a number of investors, who expressed their support and shared specific ideas as to how they can help Ukraine preserve its FX resources, it said.

"Based on that feedback, today we have launched proactive liability management operations aimed at preserving FX resources in the country. We are seeking to achieve these objectives in a market-friendly way by seeking a consensus-based solution with investors," Marchenko was quoted as saying in the ministry's statement.

It is important for Ukraine to regain access to international capital markets as soon as possible, as it is critical to the restoration of the country, Marchenko said.

As reported, the Ukrainian government has unveiled a number of proposals to holders of Ukrainian GDP-linked warrants, which include voluntarily postponing payments on GDP warrants due in 2023 for 14 months, limiting the possible amount of payments in 2025 to 0.5% of 2023 GDP, extending these instruments' circulation period by a year, and simultaneously allowing their full or partial buyback in 2024-2027.

A group of Ukraine's creditors consisting of Canada, France, Germany, Japan, the UK and the U.S. has strongly recommended that holders of Ukraine's Eurobonds accept its offer to defer payments and redemption for two years, as well as revise the terms of GDP warrants.