LONDON (Reuters) – Ukraine's overseas bondholders are in talks to form a creditor committee ahead of debt rework talks with the country, according to four people with direct knowledge of the discussions.
Time is of the essence for Ukraine to secure a restructuring before a two-year payment freeze agreed by holders of its $20 billion of outstanding international bonds ends in August.
A formal group could kick off talks ahead of the International Monetary Fund's spring meetings, two sources said, which are scheduled to start on April 17 in Washington.
Russia's full-scale invasion in February 2022 has shattered Ukraine's economy and finances, forcing it into a debt freeze to avoid a sovereign default. This would be the first effort to formalize debt talks between private bondholders and the country.
A formal group would be able to engage with the government to hold detailed discussions and exchange concrete proposal, involving privileged information.
The current push to get creditors together is coming from a number of sides, according to the sources. Ukraine's debt management office has reached out to some investors in an effort to get them organised as a creditor group, the sources said.
Weil, the law firm that advised creditors on the nation's 2015 restructuring and on the payment pause, has also reached out to some of the country's largest creditors to prepare for debt talks, according to four sources, who asked not to be named because the talks are private.
The creditor committee is expected to include eight to 12 large asset managers, one of the sources said.
Weil did not immediately respond to a request for comment.
A spokesperson for Ukraine's DMO said authorities had never stopped exchanging opinions with the market on debt strategy and sustainability.
"We keep collecting the feedback from investors on the approaches towards the commercial debt treatment in line with the intention we publicly announced a year ago," the spokesperson said.
RUSSIA'S FROZEN ASSETS
The war-torn economy has been sounding out major investors since late 2023 over plans to restructure the country's international debt and the possibility of raising fresh financing, as previously reported by Reuters. But so far discussions have only been held informally.
What a restructuring could look like is unclear as it involves an economy engulfed in a war whose outlook, fiscal position and ability to pay back its debt remain highly uncertain.
Some bondholders are hoping to emerge from a debt rework with new bonds that would deliver interest payments from the start, according to two of the sources. However, paying foreign bondholders might be unpalatable for Kyiv which is struggling to shore up its finances to keep the country afloat.
In addition to issuing bonds as part of the rework, Ukraine could raise fresh financing by selling collateralized and guaranteed bonds.
These could see Ukraine's international partners - either multilateral lenders or individual countries - provide collateral for the new bonds, akin to the so-called Brady bonds issued by Latin American countries in the late 1980s that were backed by US Treasuries.
The debt talks will unfold as Western officials are weighing confiscating some of the $300 billion-$350 billion worth of frozen Russian assets to help support Ukraine, but how it will be done remains highly complex given it would set a contested precedent.
The reserves locked in the European Union - essentially bonds and other types of securities in which the Russian central bank had invested - are held in a Brussels-based depository called Euroclear.
S&P Global Ratings said last week it expected the country to complete a debt restructuring with private creditors by the middle of this year, as it cut the country's rating deeper into junk territory.