Creditors pressure Ukraine to PAY UP on its loans

05/10/2024 / By Ramon Tomey

Two years after Russia’s special military operation in Ukraine, a group of creditors are now demanding that Kyiv pay up on its loans as early as 2025.

According to the Wall Street Journal (WSJ), the group includes investment giants BlackRock and Pimco. The creditors reportedly granted Kyiv a two-year debt holiday in 2022, betting at the time that the conflict with Moscow would have ended by now. Unfortunately, open conflict still remains with the threat of violence spilling out beyond the two belligerent nations.

The group of creditors holds around a fifth of Ukraine’s $20 billion in outstanding Eurobonds. While this figure represents a fraction of Ukraine’s total external debts of $161.5 billion, the bondholders said servicing the interest on this bonds would cost Kyiv $500 million annually.

“Should the bondholders fail to strike a deal with Kyiv by August, Ukraine could default. This would damage the country’s credit rating and restrict its ability to borrow even more money in the future,” the Daily Expose said.

The WSJ added that Ukrainian officials are hoping that the U.S. and other Western governments will side with Kyiv during talks with the bondholders. But it pointed out that a separate group of these countries has already offered Ukraine a debt holiday on around $4 billion worth of loans until 2027. The group of nation-states, it continued, are reportedly concerned that any deal with the bondholders would see private lenders being repaid before them.

Some bondholders have suggested that Washington and Brussels could use frozen Russian assets to pay off Ukraine’s debts. While around $300 billion in assets belonging to the Central Bank of Russia have been frozen in American and European banks since 2022, the U.S. only passed legislation allowing for their seizure in April. No similar legal mechanism exists in the European Union, where the vast majority of these assets are held. (Related: Russian central bank governor: Western seizure of frozen assets won’t affect Russia’s financial stability.)

But both the International Monetary Fund (IMF) and the European Central Bank (ECB) have warned governments against seizing this money. Last month, ECB President Christine Lagarde warned that doing so would risk “breaking the international order that [the West wants] to protect.”

Ukraine dependent on foreign aid to stay afloat

“Ukraine already relies on foreign aid to keep government departments open and state employees paid,” the Expose said. “The country’s military is almost entirely dependent on foreign funding.”

“Officials in Kyiv and the West were predicting imminent defeat, until the U.S. Congress approved a foreign aid bill last month – which included $61 billion for Ukraine and U.S. government agencies involved in the conflict. The bill provides almost $14 billion to Ukraine for the purchase of weapons, and includes $9 billion in new ‘forgivable loans.'”

In March, Reuters reported that a group of eight to 12 large asset managers holding a significant portion of Ukraine’s outstanding Eurobonds was expected to form a creditors committee. The names of the “large asset managers” were not provided at the time, but the later WSJ report disclosed that BlackRock and Pimco were included.

The bondholders have now formed the creditors committee and have hired lawyers from based Weil Gotshal & Manges and bankers from PJT Partners – both located in New York City – to negotiate on the committee’s behalf. A spokesman for the creditors committee said it “looks forward to engaging constructively to assist with Ukraine’s sovereign debt.”

As per the Expose, the lawyers and bankers commissioned by the private bondholders seek to strike “a deal whereby Ukraine would resume making interest payments next year, in exchange for having a significant chunk of its debt written off.” But some sources from the IMF and several countries from the Group of Seven (G7) have remarked that Kyiv would be reluctant to resume a normal debt repayment schedule before 2027 at the earliest.

Check out UkraineWitness.com for similar stories.

Watch this report by Chay Bowes of Russia Today about U.S. aid to Ukraine via the recently approved $61 billion aid bill.

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