This week, Ukraine’s creditors will vote on a proposal by the Kyiv government to delay payments on international bonds for 24 months, with which Kyiv wants to avoid a painful default, Reuters and Agerpres report.

Ukrainian bondholders have until 5:00 p.m. New York time (9:00 p.m. GMT) on Tuesday to decide whether to accept the offer from the government in Kyiv, which is facing a five billion-dollar-a-month funding shortfall and problems with liquidity after the Russian invasion.

Last week, Ukrainian President Volodymyr Zelenskyi said his country’s economy was in a “coma,” downplaying the importance of the first Ukrainian grain ship to leave the country’s ports since the war began on February 24. The ship arrived in Turkey on August 2.

“War…almost kills the economy. He is in a coma. Blocking ports by Russia is a big loss for the economy,” Volodymyr Zelenskyi said last Wednesday.

Time remaining at Ukraine’s disposal is running out, as September 1 is the deadline for the repayment of billion-dollar bonds.

Ukraine will most likely get a debt freeze

Creditors are likely to wait until the deadline to vote, according to a source close to the filing. But the source added that investors would agree to freeze debt payments.

In announcing the freeze proposal, Ukrainian Finance Minister Serhiy Marchenko said he had received “clear signals of support” from some of the world’s biggest investment funds, including BlackRock, Fidelity, Amia Capital and Gemsstock.

Separately, creditors of Ukraine’s two largest state-owned companies, Ukravtodor and Ukrenergo, whose debts are guaranteed by the Kyiv government, also have until August 9 to vote on a plan similar to the one to freeze payments on state debt.

A two-year moratorium on the payment of foreign debts will allow Ukraine to avoid legal default, as any change in the terms of repayment of bonds will have the support of creditors, explained professor of financial law Rodrigo Olivares-Caminal. Queen Mary University of London.

Kyiv may face “selective default”

In addition, rating agencies may classify this situation as “selective default” or “default”.

In late July, financial rating agency S&P downgraded Ukraine’s long-term debt rating by three notches to SS, saying a recent offer by several Western countries to defer payments would almost certainly lead to a default.

“Contractual default, credit event and inability to pay are three different concepts, even if they are related to each other. Entering one of these situations does not automatically mean that the other two will be activated,” explains Olivares-Caminal.

Even if investors agree to freeze debt payments, it is unclear whether Ukraine will need to restructure them in the medium term.

Ukraine hopes that by the end of the year it will be able to conclude an agreement with the International Monetary Fund on an aid program worth 15-20 billion dollars.

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