KIEV: Ukraine reached what its finance minister called a “win-win” deal with its largest group of creditors to ease repayments on its $18 billion debt, winning breathing space for an economy drained by the cost of fighting with pro-Russian separatists.

The agreement, which includes a write-down of 20 per cent of the principal owed, ended months of tense negotiations aimed at helping to keep Ukraine on track with its International Monetary Fund-led bailout programme, plugging a funding gap and preventing a unilateral debt default.

As both sides vowed to work together to secure full support from bondholders for the deal, the only dissenting voice came from Russia, a big creditor, which said it would continue to demand full repayment by Ukraine of a $3bn eurobond coming due in December.

The creditors, led by Franklin Templeton and including other asset managers, accepted a small increase in the coupon on most of the bonds to 7.75pc and extended each maturity by four years. However, it must be approved by creditors outside the group.

Ukraine said the deal, announced on Thursday, would reduce the payments due over the next four years by $11.5bn.

This will free up funds to help the war effort in the east, support the poor, cover purchases of Russian gas over the winter period and help keep the national currency, the hryvnia, stable according to a factsheet issued by the finance ministry.

“Everyone’s done well out of this deal. That’s why it’s collaborative. It’s not one side winning, it’s a win-win situation. We’re all now moving forward without putting the value of the bonds at any further risk,” Finance Minister Natalia Yaresko said late on Wednesday in remarks embargoed until Thursday.

The country’s sovereign dollar bond prices surged and debt insurance costs fell after the details were released.

Ukraine and the creditors said in a joint statement they would work together “to ensure the rapid implementation of the deal.” But though Prime Minister Arseny Yatseniuk and Yaresko savoured a victory after months of gloom, there was a question mark over whether the other creditors would fall in line.

The joint statement appealed to other bondholders to approve the deal and urged the international community to provide non-debt support to Ukraine in the form of grants. In Washington, IMF chief Christine Lagarde said it was important that the agreement gained “broad support from all concerned eurobond holders”.

Yaresko said she hoped it was “highly unlikely” remaining creditors would reject the agreement and forecast that the process would be wrapped up by the end of October.

However, a dispute immediately took shape with Russia over Ukraine’s $3bn eurobond that matures in December.

Published in Dawn, August 28th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play