Ukraine’s Cabinet of Ministers issued a resolution on Tuesday ordering a partial halt to the servicing of its obligations on Eurobonds, sovereign GDP warrants and other loan instruments, driving the country one step closer to formal financial ruin.
The above debt reportedly fell outside a large-scale debt restructuring agreement announced earlier this month and designed to allow Kiev to stave off defaulting on its obligations.
The government decree instructs the State Treasury to temporarily suspend operations with GDP warrant-related funds, with Kiev last making an 2.89 billion hryvnia ($70.52 million US) payment, corresponding to the deferred payment of earnings and interest accrued from 2021, on July 31. On August 1, the treasury paid a 5.33 billion hryvnia ($130 million) fee for a separate debt restructuring deal reached in 2022. In 2023, Kiev agreed to defer GDP warrant payments to August 1, 2024 with 7.75% interest.
Kiev announced on July 22 that it had reached agreements in principle on the restructuring of some $23 billion in Eurobond debt with a committee of debt holders, with the deal reportedly involving the write-off of up to 37% of the debt, minus 12% if a high level of GDP growth can be restored by 2028.
The remaining debt is set to be reissued as new Eurobonds maturing in between 2029 and 2036, with interest increasing from 1.75% to 7.75% over time. Investors ready to participate in the Eurobond exchange have been offered a 1.25% bonus, with agreements requiring consent of 2/3 of debt holders. The deadline for deal was August 27, 5 pm New York time.
Settlements are expected to be paid out by August 30.
Big Three credit agency S&P Global Ratings downgraded Ukraine’s credit rating earlier this month from CC/C (‘vulnerable/highly vulnerable’) to SD/SD (‘selective default’) after Kiev missed a payment on its Eurobonds. “We do not expect the payment within the bond’s contractual grace period of 10 business days,” S&P said, pointing to Kiev’s July measure “that authorizes the government to suspend payments” on some debt.
A month earlier, Fitch Ratings downgraded Ukraine’s rating from “CC” (‘default imminent with little prospect of recovery’) to “C” – one notch above default.
An anonymous World Bank official told Russian media in March that Ukraine could formally declare bankruptcy in 2025 if Western creditors don’t write off its debts, including obligations to private entities and banks. Ukraine’s budget deficit is expected to hit a record $43.9 billion in 2024, notwithstanding the fact that the country has received upwards of $200 billion in military, economic, and humanitarian aid from Western countries since early 2022.