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Ukraine aims to negotiate debt restructuring by deadline, Reuters

Ukraine aims to negotiate debt restructuring by deadline, Reuters Photo: The restructuring of Ukraine's debt will take place by August 1 (Getty Images)

Ukraine has informed investors that it still counts on debt restructuring before the end of the payment moratorium on August 1, reports Reuters.

According to sources, on July 1, Ukraine held a conference call and stated its intention to include GDP warrants in the agreement to restructure bonds worth about $20 billion.

Formal negotiations on restructuring ended last month without reaching an agreement. Statements published last week showed a significant gap between the 20% write-off bondholders were willing to accept and Ukraine's proposal, which implied a discount of up to 60%.

"They believe that an agreement can be reached soon," said one of the sources, who spoke on condition of anonymity. Yuriy Butsa, head of Ukraine's debt management, who oversees the country's interactions with creditors, held the conference call, which was joined by government representatives and the head of the IMF mission in Ukraine, Gavin Gray.

On the creditors' side, members of the Ad Hoc Creditor Committee, as well as investors who were not part of the group, joined the call.

Ukraine's commercial debt

Ukraine has outstanding bonds worth $19.7 billion and owes $2.6 billion on GDP warrants - a fixed-income instrument whose payments are linked to the level of economic growth. The warrants were created during Ukraine's debt restructuring in 2015.

In a statement published last week detailing the government's restructuring proposal to bondholders, GDP warrants were mentioned only in the context of eliminating the cross-default clause between bonds and warrants. Some investors interpreted this as a sign that Kyiv did not plan to restructure both types of debt simultaneously but to deal with the bonds first.

However, it has now become clear that something also needs to be done with the warrants, sources said, as the payments were included in the IMF's crucial debt sustainability analysis (DSA) and could also divert money from the largely symbolic coupon payments the government proposed to make to bondholders as part of the restructuring.

Ukraine also intends to include a most-favored-creditor provision in the restructured bond instruments to ensure that holders of state enterprise debt do not receive more favorable terms when restructuring this debt at a later stage.