The default of Ukraine, at hand

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Ukraine’s creditors will vote this week on a proposal by Kyiv’s government to delay payments on international bonds for 24 months, a measure by which Kiev wants to avoid a painful default, Reuters reported, citing by Agerpres.

Ukrainian bondholders have until 17:00 New York time (21:00 GMT) on Tuesday to decide whether or not to agree to the proposal from the government in Kyiv, which faces a funding shortfall of five billion dollars a month and the liquidity problems after the Russian invasion. The remaining time at Ukraine’s disposal is coming to an end, as bonds worth one billion dollars mature on September 1.

According to a source close to this file, most likely creditors will wait until close to the deadline to vote. But the source added that the investors would agree to the debt payment freeze.

When announcing the proposed freeze, Ukrainian Finance Minister Sergii 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 two large state-owned companies in Ukraine, Ukravtodor and Ukrenergo, whose debts were guaranteed by the Government of Kyiv, also have until August 9 to vote on a plan similar to the one regarding the freezing of sovereign debt payments.

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

Also, the rating agencies could classify this situation as a “selective default” or “default”.

“A contractual default, a credit event and an 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 triggered,” said Olivares-Caminal.

Even if the investors were to agree to the debt payment freeze, it is unclear whether Ukraine will still need a restructuring of 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 for an assistance program worth 15-20 billion dollars.