Ukraine Reaches Preliminary Agreement to Restructure $20 Billion in International Bonds
Ukraine announced on Monday that it had reached a preliminary agreement with a group of creditors to restructure $20 billion in international bonds, bringing the war-torn country closer to an unprecedented debt overhaul.
This announcement comes just over a week before a two-year debt suspension agreement, made in 2022, is set to expire. It marks the first time a country has undertaken a debt restructuring during an ongoing 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.
Marchenko emphasized that this was a crucial step to ensure Ukraine maintained the budget stability and cash resources needed to continue financing its defense efforts.
Ukraine’s finances are in a precarious state as its 28-month war with Russia drags on. The 2022 Russian invasion severely damaged its economy, leaving Ukraine heavily dependent on financial and military aid from international partners.
Sources close to the talks and analysts indicated that the upcoming U.S. presidential election in November, along with the risk of a potential Donald Trump presidency’s wavering commitment to support Ukraine, increased the pressure for a debt restructuring.
The proposal includes a 37% nominal haircut on Ukraine’s outstanding international bonds, which would save Kyiv $11.4 billion in payments over the next three years—the duration of the country’s program with the International Monetary Fund (IMF) set to expire in 2027, according to government statements.
The government stated that the IMF had confirmed the deal was compatible with the parameters of its $122 billion support package, and that the Group of Creditors of Ukraine (GCU) had also approved it.
A spokesperson for the Paris Club of creditor nations, which usually handles communications for the GCU, confirmed the group was comfortable with the proposal.
The IMF welcomed the agreement, confirming it is consistent with the current program, and added that it will be “essential to bring Ukraine’s debt burdens to sustainable levels, thereby ensuring room for critical spending and supporting growth.”
Ukrainian Prime Minister Denys Shmyhal said on the Telegram app that the deal would free up resources for urgent needs, including defense, social protection, and recovery.
A source at the German finance ministry welcomed the draft agreement, calling it a key step to preserve the Ukrainian government’s ability to act and plan ahead.
The Ad Hoc Creditor Committee, which holds 22% of the country’s sovereign bonds, described the agreement as “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,” the committee said in a statement.
Racing to the Finish
Under the proposal, some of the new bonds issued would start paying a 1.75% coupon from next year, with payments increasing to as much as 7.75% from 2034 onwards. Bondholders are also set to receive a consent fee.
Interest payments had been a contentious issue in the talks. Bondholders sought financial inducements to agree to the restructuring, while Ukraine’s international partners, such as the Group of Seven nations and the IMF, opposed large sums of money being directed to private lenders instead of strained government finances.
Payments to bondholders under the deal would amount to less than $200 million through the end of 2025.
Although the bonds have a face value of $19.7 billion, Ukraine owes around $23 billion with past due interest.
International bonds surged more than 5 cents after the announcement, with most maturities trading around the 35 cents mark, their strongest level in about two years.
Ukraine’s $2.6 billion GDP warrants—fixed-income instruments with payouts linked to the strength of economic growth—were not part of the restructuring. However, the government said it would “ensure the fair and equitable treatment of holders of the Warrants.”
Bondholders will vote on the proposal in the coming weeks. If enough approve, the government will issue new bonds.
A first payment following the two-year moratorium is due on August 1, but Ukraine passed a law last week allowing it to miss payments—and enter debt default, even temporarily—while the agreement is finalized.
This debt deal would be Ukraine’s second in a decade triggered by its neighbor: Ukraine restructured in 2015 following Moscow’s annexation of Crimea.
“Once completed, this restructuring will also pave the way for Ukraine’s market re-entry as soon as possible when the security situation stabilizes to fund our country’s swift recovery and reconstruction,” Marchenko said in the statement.
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