(Bloomberg) -- Ukraine and its international bondholders started a new round of official talks on restructuring more than $20 billion of debt as Kyiv is running out of time to reach an agreement or face the risk of a potential default.
The east European nation, fighting against Russian aggression, is under pressure to agree a debt overhaul with its creditors as a freeze on payments — agreed two years ago after Moscow’s full-scale invasion — is set to expire on Aug. 1.
With repayments about to resume in two weeks, the government is asking investors to accept bigger losses that would allow it to finance its defense efforts and prepare financial resources for reconstruction when the war ends.
A group of Ukraine’s bondholders has signed non-disclosure agreements and the second round of talks began this week, according to people familiar with the matter, who asked not to be named because the proceedings are confidential. The first round of negotiations failed to yield an agreement last month after Ukraine pushed creditors for a bigger debt relief.
The “restricted” talks usually mean negotiations are covered by non-disclosure requirements that allow for the sharing of non-public information, as well as temporary trading limitations because the topics under discussion may be market-sensitive.
The two sides are closing the gap on haircuts and coupon payments, with bondholders pushing for more than symbolic coupon payments after the moratorium ends, one of the people said.
Ukraine’s Finance Ministry declined to comment on the talks, as did a representative for the bondholders’ committee.
The group representing the creditors includes Amundi SA, BlackRock Inc. and Amia Capital LLP. PJT Partners Inc. is acting as its financial adviser and Weil, Gotshal & Manges LLP is legal adviser to bondholders. The country is represented by Rothschild & Co and White & Case LLP as financial and legal advisers, respectively.
Ukrainian dollar notes due in 2035 traded around 28 cents on the dollar on Thursday, down less than a cent this week.
As it stands, the two-year debt freeze will end with a coupon payment due on Aug. 1 on a bond due in 2026. The country could enter a technical default if it doesn’t pay after a 10-day grace period.
Payment Suspension
Later on Thursday, lawmakers in Kyiv approved a new law that allows the government to impose a temporary ban on foreign debt payments until October.
The legislation, which was submitted by the cabinet and included some provisions from a separate bill drafted by President Volodymyr Zelenskiy’s party, enables the suspension of payments on international sovereign debt and state-guaranteed obligations.
The legislation provides the necessary flexibility ahead of reaching an agreement in principle with private creditors on debt restructuring, according to the Finance Ministry.
Ukraine told bondholders earlier this month that the country will include a treatment of its GDP-linked warrants in the debt rework along with its outstanding sovereign bonds. The warrants have payments linked to the country’s economic performance, and were issued as sweetener during the country’s 2015 debt restructuring.
--With assistance from Volodymyr Verbianyi, Kateryna Chursina and Kerim Karakaya.
(Updates with details on bondholder group starting in eighth paragraph)
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