Ukraine reaches preliminary deal with bondholder group on $20 bln debt rework

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Deal to enable $11.4 bln in cash flow relief over next 3 years

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Agreement frees money for defence, social spending - Ukraine PM

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Government says IMF, official lenders have signed off on deal

By Karin Strohecker and Libby George

LONDON, - Ukraine said on Monday it had reached an agreement in principle with a group of creditors to restructure $20 billion of international bonds, a key step bringing the war-torn country closer to an unprecedented debt rework.

Ukraine's announcement comes just over a week before a 2-year debt suspension agreement struck in 2022 is due to run out and marks the first time a country has embarked on a debt restructuring in the midst of a full-scale war.

"After months of engagement and hard work with our private bondholders, the IMF and our bilateral partners, we have reached an agreement in principle with the Ad Hoc Creditor Committee on the comprehensive restructuring of our public external debt," Finance Minister Serhiy Marchenko said in a statement.

This was "an important step to ensure Ukraine maintains the budget stability and cash resources needed to continue financing our defence," Marchenko added.

The proposal would see a 37% nominal haircut on Ukraine's outstanding international bonds and result in a cash flow relief of $11.4 billion over the next three years - the duration of the country's programme with the International Monetary Fund set to expire in 2027, according to government statements.

The government said the IMF had confirmed that the deal was compatible with the parameters of its $122 billion support package, and that the country's official lenders, the Group of Creditors of Ukraine, had also signed off on it.

The Ad Hoc Creditor Committee, which holds 22% of the country's sovereign bonds, called the agreement "swift and constructive".

"We are pleased to be able to provide significant debt relief to Ukraine, assist its efforts to regain its access to international capital markets, and support the future reconstruction of the country to the benefit of the Ukrainian people," it said in a statement.

Under the proposal, some of the new bonds issued would start paying a 1.75% coupon from next year, with payments stepping up to as much as 7.75% from 2034 onwards. Bondholders are also in line to receive a consent fee.

Interest payments had been a sticky issue in the negotiations. While bondholders needed some financial inducement to agree to a restructuring, Ukraine's international partners such as Group of Seven nations and the IMF had pushed back against large amounts of money funnelled to private lenders - and away from strained government finances.

A source close to the deal said Ukraine's payments to bondholders under the deal would amount to less than $200 million through the end of 2025.

While the bonds have a face value of $19.7 billion, Ukraine owes around $23 billion with past due interest. By 0746 GMT, the bonds had gained as much as 2.43 cents, with the 2034 maturity trading at 29.69 cents on the dollar.

Ukraine's Prime Minister, Denys Shmyhal, said in a message on the Telegram app that the deal would free up resources for urgent needs, including defence, social protection and recovery.

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