Ukraine provides a Debt Restructuring Case Study
Newspaper are hailing Ukraine Debt Restructuring as a win-win deal and leaders across the developed nations and international organisations are praising Ukraine finance minister Natalia Yaresko about her tenacity and determination which made this deal possible.
Some of the key highlights of the deal:
20% Principal haircut: Lenders accept to waive of 20% of Ukraine’s sovereign debt held amounting to ~US$3.6bn which would reduce debt burden from US$19.3bn to c.US$15.5bn.
Raised rate of interest: Coupon will be 7.75% up from the current c.7.2% levels which will marginally reduced annual interest payment from US$1.4bn to US$1.2bn
Loan Tenure Extended: Loss of interest and haircut partially offset through extention of debt maturities which have been extended to the period 2019-2027, compared with 2015-2023 earlier.
Value recovery instrument: This is a great instrument which would enable Ukraine to bear the pain in bad times i.e. if economy had to not live upto expectation. This is a win-win in a sense that even lenders would have a ready mechanism to save their books from losses and a deadlock in case the country is not in a position to pay back annual commitments. Following are the conditions -
It is necessary to note that lenders are willing to accept the haircut as high as 20% and also allow flexibility in terms of repayment in case growth is lower than required to the full annual commitments. This would ease the pressure on countries and would allow a real chance of recovery along with deleveraging. Amen!
Newspaper are hailing Ukraine Debt Restructuring as a win-win deal and leaders across the developed nations and international organisations are praising Ukraine finance minister Natalia Yaresko about her tenacity and determination which made this deal possible.
Some of the key highlights of the deal:
20% Principal haircut: Lenders accept to waive of 20% of Ukraine’s sovereign debt held amounting to ~US$3.6bn which would reduce debt burden from US$19.3bn to c.US$15.5bn.
Raised rate of interest: Coupon will be 7.75% up from the current c.7.2% levels which will marginally reduced annual interest payment from US$1.4bn to US$1.2bn
Loan Tenure Extended: Loss of interest and haircut partially offset through extention of debt maturities which have been extended to the period 2019-2027, compared with 2015-2023 earlier.
Value recovery instrument: This is a great instrument which would enable Ukraine to bear the pain in bad times i.e. if economy had to not live upto expectation. This is a win-win in a sense that even lenders would have a ready mechanism to save their books from losses and a deadlock in case the country is not in a position to pay back annual commitments. Following are the conditions -
- No payments if real GDP growth is below 3%
- 15% of the value of the GDP growth between 3-4%
- 40% of the value of the GDP growth above 4%
- Total payments capped at 1% of GDP from 2021 until 2025
- No payments unless nominal GDP is higher than US$125.4bn
It is necessary to note that lenders are willing to accept the haircut as high as 20% and also allow flexibility in terms of repayment in case growth is lower than required to the full annual commitments. This would ease the pressure on countries and would allow a real chance of recovery along with deleveraging. Amen!
