LONDON, Sept 3 (Reuters) – Just a few months after Russia invaded Ukraine, the country’s financial adviser, Rothschild & Co, handed Kyiv’s debt chief a thick black folder detailing major sovereign debt restructurings of the past 30 years.
He hadn’t been involved in the debt rework Ukraine required in 2015 after Russia annexed Crimea and it wasn’t long before he would need to draw on the restructuring expertise.
Facing an economy crippled by the cost and destruction of the war, by August 2022 Ukraine agreed with creditors to pause payments on its bonds.
With no end to the conflict in sight, last week the nation sealed one of the fastest – and largest – debt restructurings in history.
As well as the looming deadline, the IMF, providing Ukraine with $15.6 billion of support, had just updated its projections.
IMF experts were on call in both Kyiv and Washington in an exceptional arrangement, according to one source.
That was vital for doing the labour-intensive modelling needed to work out what each proposed compromise would mean for Ukraine’s longer-term debt sustainability.
Butsa’s team and the IMF were also adamant that there couldn’t be anything like the costly ‘GDP warrants’ used to sweeten its 2015 restructuring.
Driving back from the Polish airport where his flight had landed – the most reliable route since Russia’s invasion halted flights from Kyiv – a driver turned across Ukraine debt chief Butsa’s VW Golf.
Reporting by Marc Jones and Karin Strohecker in London; additional reporting by Libby George; editing by Elisa Martinuzzi and Christina Fincher
LONDON, Sept. 3 (Reuters)-Few months after Russia invaded Ukraine, the nation’s financial advisor, Rothschild and Co., gave the head of Kyiv’s debt management a thick black folder containing a list of significant sovereign debt restructurings that had taken place over the previous 30 years.
For forty-year-old Yuriy Butsa, it would be a necessary read. He was not involved in the debt restructuring that Ukraine needed in 2015 following Russia’s annexation of Crimea, and he would soon need to use the restructuring knowledge.
By August 2022, Ukraine had reached an agreement with its creditors to suspend bond payments due to the economic damage caused by the war’s cost and devastation. Since there seems to be no end in sight to the conflict, the country last week finalized one of the fastest and largest debt restructurings in its history.
Only Argentina and Greece can match the magnitude of this debt restructuring, which will save Kyiv $114.4 billion over the next three years and be essential to both its ongoing war effort and its International Monetary Fund program.
According to Arvid Tuerkner, managing director for Ukraine and Moldova at the European Bank for Reconstruction and Development, a significant multilateral partner of Kyiv, “a stable situation where no more question marks are out there can only benefit Ukraine,” Reuters was informed.
This narrative about the formation of Ukraine’s bondholder agreement is based on interviews with five government and investor participants who consented to speak with Reuters under anonymity.
TALKS ON REVIVAL.
The government’s initial talks with its lenders had not gone as planned.
After a few weeks of talks, the core committee of bondholders complained that the writedown Ukraine was demanding was “significantly in excess” of the 20 percent most had anticipated and could cause “substantial damage” to relations. This led to the breakdown of talks in June.
Rothschild set up in-person meetings at the company’s sophisticated Parisian offices on the tree-lined Avenue de Messine with less than two months until the August 2022 payment moratorium expired.
Rothschild opted not to respond. On a U.S. request for comment, the IMF did not immediately reply. S. Vacation.
Early on July 16, delegates from some of the leading asset management companies in the world, along with their financial and legal advisors, arrived in Paris. There, they were received by Butsa, the Rothschild team, and long-term legal advisors White & Case of Ukraine.
There were several conference rooms set aside for group talks and individual planning, all of which were decked out with images of the renowned Rothschild vineyards.
Sources close to the government and the creditors claimed that the attitude was practical from the beginning. Even though the two sides were still very far apart, everyone had come with the expectation of reaching a deal.
UNCERTAINTY EXCEPTIONAL.
Resuming discussions was warranted.
The IMF, which is giving Ukraine $15.06 billion in support, has recently updated its projections in addition to the approaching deadline. These provided a new foundation to work from even though they reflected a deteriorating economic picture.
The proposal from Ukraine was presented first. A significant group of bondholders, including some of the largest asset managers in the world, including BlackRock and Amundi, were given the opportunity to clarify their demands, which included that Ukraine immediately resume “coupon” payments, provide a route to a greater principal recovery, and—above all—”keep it simple.”.
In an unprecedented arrangement, IMF experts were available in both Washington and Kyiv, one source claimed. It was necessary to perform the labor-intensive modeling in order to determine the implications of each proposed compromise for the longer-term debt sustainability of Ukraine.
Almost 48 hours into the process, at 4 a.m. in Paris on July 18 or 5 a.m. in Kiev, a new request was made to the IMF teams to rerun the numbers. There were some who had hardly slept at all when crunching the figures.
The Fund’s staff worked incredibly fast and helped overcome many challenges, providing invaluable assistance.
In addition, the IMF and Butsa’s team were adamant that the 2015 restructuring could not involve any “GDP warrants,” which were very expensive. They stipulate that if nominal GDP surpasses $125 billion and annual growth reaches 3 percent, Kyiv must contribute a significant portion of its economic output.
Nevertheless, creditors were also offered the instant coupon payments they had desired, beginning at a rate of 1.75% and eventually rising to 7.55%, along with an alternative offered by Ukraine in the form of a more straightforward GDP-linked bond.
Because it was designed to be easier to buy and sell and qualify for the primary bond indexes, the divide had been nearly completely closed. When the crowded city of Paris finalized its preparations for the Olympics, those there started to leave with only the fine print left to sign.
AUTO CRASH.
All was not lost, though, in the drama.
A driver came across Ukraine debt chief Butsa’s VW Golf while returning from the Polish airport, which was the most dependable route since flights from Kyiv were suspended due to Russia’s invasion.
Though no one was harmed, Butsa was now sitting in an insurance office in Lviv, finishing paperwork and fielding calls to confirm that the $20 billion restructuring had been agreed upon in principle.
Over 97% of bondholders voted in favor of the proposal, which was the overwhelming final result.
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Additional reporting by Libby George; editing by Christina Fincher and Elisa Martinuzzi; reporting by Marc Jones and Karin Strohecker in London.
