Rothschild helped Ukraine clinch debt restructuring – Reuters

Kiev’s financial adviser arranged face-to-face meetings with bondholders in July 2022 after initial talks failed, according to a report.

Ukraine reached its recent agreement with bondholders on a debt restructuring as a result of efforts by Rothschild & Co, Reuters reported on Tuesday, citing sources involved in the talks. Kiev appointed Rothschild as an advisor to its Finance Ministry in 2017.

Kiev announced last week that it had reached an agreement with a group of foreign investors to restructure its $20 billion debt. Bondholders – including US financial giants BlackRock and Pimco, as well as French asset manager Amundi – granted Ukraine a two-year debt freeze in February 2022 when the conflict with Russia broke out.

The bondholders’ committee, which represents the holders of 25% of the bonds, has agreed to accept losses of 37%, or $8.7 billion, on the nominal value of their debt.

The International Monetary Fund (IMF) has reportedly confirmed that the deal was compatible with the parameters of its $122 billion aid package to Kiev. Both the IMF and the country’s creditors, which include the US and the Paris Club, have signed off on it, according to a statement with the terms of the accord published on the London Stock Exchange.

The restructuring of the massive debt will help Kiev save $11.4 billion over the next three years. This is crucial for both its war effort and its IMF program, Reuters wrote, describing the debt restructuring as one of the fastest and largest in history, eclipsed in scale only by those undertaken by Argentina and Greece.

The report, however, highlighted that initial negotiations between the Ukrainian government and its lenders that started in June 2022 did not go to plan. Talks failed after a couple of weeks as the core committee of bondholders complained that the write-down Ukraine was demanding was “significantly in excess” of the 20% expected and risked doing “substantial damage” to relations.

With less than two months until the August 2022 payment moratorium expired, Rothschild reportedly arranged face-to-face meetings for the sides at the firm’s offices in Paris. These reportedly involved representatives of some of the world’s top asset management firms and their legal and financial advisers, Kiev’s debt chief Yury Butsa, Ukraine’s long-term legal advisers White & Case and the Rothschild team.

According to Reuters, bondholders demanded that Ukraine restart coupon payments immediately, offer a path to a higher principal recovery and, importantly, “keep it simple.” IMF staff reportedly worked “at breakneck speed” to crunch the numbers.

Kiev offered an alternative in the form of a simpler GDP-linked bond, with creditors also being offered the instant coupon payments that they had wanted, starting at a rate of 1.75% and eventually rising to 7.75%.

The final result from the bondholder vote was more than 97% support, Reuters said.

Image credit: Andreas M