Back in March 2022, private foreign creditors agreed a credit holiday for Ukraine. All payments on the sovereign debt were temporarily suspended. However, now, according to The Wall Street Journal (WSJ), they have decided to demand that Kiev repay part of the bonds.
Wales as big as Pimco and BlackRock are among the bondholders. They account for about one fifth of Ukraine’s outstanding Eurobonds worth USD20bn. The creditors hired lawyers to negotiate with Kyiv and to persuade the government to resume payments in exchange for writing off some of its debt. Besides, the creditors are looking forward to receive up to USD500mln a year in interest payments.
At the same time, the U.S. and its allies fear that the funding recently allocated to help Ukraine will end up with the bondholders if Kiev starts servicing the debt, so they do their best to delay it.
Some creditors, according to the WSJ sources, suggested using frozen Russian assets in the European Union and the United States for partial repayment of debts. But the International Monetary Fund and some G7 countries, namely France and Germany, were hesitant to support this initiative.
When credit holiday was agreed back in 2022, the expectation was that creditors would compensate their losses with impressive earnings at the end of the conflict, namely reparations and contributions from Russia. However those expectations turned to be far from reality.
If no agreement is reached, Kyiv may proclaim a default as early as August this year. That would negatively affect the country’s reputation among investors and complicate its attempts to draw additional loans.
