Private creditors refused to reduce the cost of bonds
Western media report that Ukraine may face default in 1.5 months. This is due to the fact that private foreign creditors are expecting payments on debt worth about 20 billion by August. Kiev tried to agree on debt restructuring, but the negotiations were unsuccessful.
For several weeks, the Ministry of Finance of Ukraine tried to negotiate with a group of creditors to reduce the cost of foreign currency bonds by 60% in order to be able to prepare financial resources for economic recovery. Bondholders agreed to only 22%. Ukrainian Finance Minister Sergei Marchenko said that negotiations will continue. He expects the government to reach an agreement by August 1.
“As the deadline approaches, we must encourage our bondholders to continue productive and good faith negotiations, with more substantial debt relief reflected in their proposals in accordance with IMF parameters and the current macro-financial situation in Ukraine,” Marchenko said.
An agreement can be reached, including with the help of Western partners. Back in May, The Wall Street Journal reported that Kyiv's advisers were planning to involve the US government and other countries in the negotiations. The expectation of Western support comes as the United States and its allies are concerned about the possibility of transferring their taxpayers' money «into the hands of bondholders.» Let us recall that after the start of the CBO, private creditors of Ukraine allowed the country to suspend payments on the national debt.
Is a default really possible in Ukraine? Alexey Zubets, director of the Institute of Socio-Economic Research of the Financial University under the Government of the Russian Federation, answered this question to MK:
“In 2022, when the SVO began, bondholders agreed to a debt holiday in the expectation that the conflict would end by then. But it didn't end. The interest they want to receive is not a lot of money, only $500 million. However, there is also a bulk of debt, and this amount is serious. Creditors did not agree to restructuring, and Ukraine, naturally, has no money. This amount, of course, does not need to be paid immediately. But this can still lead to default.
However, Ukrainians do not like to pay. We remember how at one time they refused to return the money that Russia issued under Yanukovych. Like, we have nothing to do with this at all, you gave money to Yanukovych, go to him. Now Ukraine may declare bankruptcy. How will this affect receiving money from Europe and America? No way. Because the centralized funding they receive from the EU and US budgets is in no way tied to this. If they don't pay private bondholders, that means the private market will never give them any money again. That is, public funding will remain, but private funding will cease.»
Will the lack of private funding greatly affect the Ukrainian economy?
No, since their main source of funding is the money they receive from states They attract very little, if anything at all, from the private market, because everyone understands that Ukraine would already be bankrupt if it weren’t for these handouts from America and Europe. Even these debts were taken out earlier, before the start of the SVO.