By Rodrigo Campos and Karin Strohecker
NEW YORK/LONDON (Reuters) – More than two years into a war that has cost tens of thousands of lives, Ukraine is about to embark on the unprecedented task of restructuring its debt in the middle of the raging conflict.
Ukraine’s economy nosedived after the Russian invasion in early 2022 and, while it has been unexpectedly resilient since last year, the initial shock forced Kyiv to request a two-year debt payment freeze to avoid a default.
The expiry of this freeze in August means little time is left for Ukraine to either restructure its debt – the government’s preferred option, secure an extension to its payment freeze with its bondholders, or face a hard default.
In support of Ukraine, leaders of the G7 major democracies agreed an outline deal on Thursday to provide $50 billion of loans for Kyiv using interest from Russian sovereign assets frozen after Moscow invaded its neighbour.
Below is a look at what Ukraine owes, and to whom.
THE BIGGER PICTURE
Ukraine’s government-guaranteed debt amounted to $152 billion total by the end of April, according to data from the Finance Ministry. That is a sharp uptick since the start of the war – overall debt at the end of 2021, some two months before the invasion, stood at $98 billion.
Of the current outstanding debt, more than 70% – or $108.4 billion – is external. The remainder is domestic debt, nearly all of which is in form of local bonds with maturities between 12 months and 30 years.
That total figure includes a $3 billion bond and a $600 million loan owed to Russia. Disregarding this claim, which is subject to a dispute in English courts, Ukraine’s external debt amounts to $104.8 billion.
The debt-restructuring efforts currently underway will only touch a small part of the overall debt burden, namely the country’s external commercial debt.
EUROBONDS AND WARRANTS
Debt to private creditors earmarked for restructuring comes in the form of Eurobonds and GDP warrants. Eurobonds amounted to $19.67 billion at the end of April, according to ministry data, which are outstanding across 11 dollar-denominated and two euro-denominated bonds. Including past due interest, the amount owed on the Eurobonds amounted to $23.6 billion, according to JPMorgan calculations published in April.
Also in scope for the restructuring is a GDP warrant – an instrument linked to the country’s economic output growth which was created during Ukraine’s 2015 debt restructuring in the wake of Russia’s annexation of Crimea as a sweetener to creditors. JPMorgan calculates that Ukraine owes $2.6 billion on this instrument.
A debt moratorium on these instruments is expiring in late August and it is not clear whether creditors would enforce full payment if an agreement isn’t reached by then.
The Kyiv government asked its private international bondholders earlier this year to organise a group in order to renegotiate the terms of those Eurobonds and is currently intalks with investors holding the securities.
“We estimate debt sustainability could be achieved via a 30% notional haircut on the overall bond stock, including deferred interest, with some maturity extension and coupon relief,” JPMorgan analysts said in a client note.
STATE-GUARANTEED DEBT
Ukravtodor, the state agency for roads, has a government guarantee on a $700 million note, while state grid company Ukrenergo has a guarantee on a $830 million note. Holders of bonds have also agreed to a matching two-year moratorium on those two companies, which is also set to run out within months.
BILATERAL DEBT
Loans from official creditors Canada, France, Germany, Italy, Japan, Netherlands, Poland, Britain and the United States add up to $7.5 billion, with just over $5 billion owed to Canada alone. These governments have extended a freeze until 2027.
MULTILATERAL DEBT
Nearly $70 billion of external state and state-guaranteed debt – or almost two thirds in that category – is owed to multilaterals, and – the same as with domestic debt – it is not in scope for the restructuring. Of that, just over $16 billion is owed to the International Monetary Fund.
The IMF is about to disburse $2.2 billion of new money to Ukraine under a current $15.6 billion loan program. The Fund’s debt sustainability analysis will be a key element of the commercial debt restructuring.
LOANS AND MONEY OWED TO BANKS
State money owed on loans or other commercial bank debt externally added up to $1.63 billion in April, the largest chunk of which (about $700 million) is owed to U.S. agribusiness giant Cargill.
Within the state-guaranteed section, debt from loans to foreign commercial banks added up to just over $1 billion, with $830 million of that owed to the Export-Import Bank of China.
