The Ukrainian government says it has reached a debt restructuring deal with its creditors including a write-off of up to $3.8bn (£2.5bn; €3.4bn).
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Finance Minister Natalie Jaresko reached an accord with a Franklin Templeton-led creditor committee that includes a 20% writedown to the face value of about $18 billion of eurobonds, the first of which matures in less than a month.
War-torn Ukraine has been struggling to satisfy the conditions of an global Monetary Fund bail-out, which requires it to secure relief on its mounting debt.
President Poroshenko, who was accompanied by Foreign Minister Pavlo Klimkin, provided an update on the security situation in eastern Ukraine, where the recent escalation of fighting was of particular concern, as well as harassment of the OSCE’s Special Monitoring Mission by separatists.
“Fitch considers that this represents a Distressed Debt Exchange (DDE) under its criteria that results in material losses to bondholders and is being conducted in order to avoid default”, the agency said in a statement released late Thursday.
“I’m hopeful that there will be no holdouts – including the holders of the so-called Russian bond”.
But its implementation has been delayed to address Russian fears that low-cost European goods could flood into Russia from Ukraine.
The deal, after more than five months of sometimes bitter negotiations aimed at plugging a $15 billion gap in Ukraine’s finances, sent its bond market soaring.
The agreement, which requires approval from Ukraine’s parliament, marks a milestone in the government’s efforts to restore its conflict-ravage economy back to health and is a major success for the pro-Western government as it seeks to push through a series of politically tough economic overhauls.
This is a better deal for Ukraine than many were expecting.
If Ukraine sticks to its promise not to let Moscow to dodge the cut, it could further aggravate tensions over eastern Ukraine. By the end of the year, Ukraine’s GDP may be nearing $70 billion, a fall of 60% in dollar terms over the past two years.
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Key elements of the deal remain outstanding, while violations have been reported on both sides, raising doubt over whether it can be fully implemented by an end-of-year deadline. If it makes progress in solving these in the next few months, the debt deal’s significance will pale in comparison.
