Bluebay Asset Management has left the ad hoc committee of Ukraine’s sovereign bondholders, two sources familiar with the situation said.

The move comes as the government prepares to tackle close to USD 20bn in external bonds and GDP warrants before a two-year payment standstill runs out on 1 August.

The bondholder group was formed in mid-April and hired PJT and Weil as financial and legal advisors. Its members include Amundi, BlackRock and Amia Capital, according to reports.

The group controls around 20% of the total nominal amount of the country’s external debt securities, the first and a third source familiar with the situation said.

The sources did not say why Bluebay had left the committee or what amount of Ukraine’s debt securities the fund holds.

Bluebay’s senior sovereign strategist Tim Ash has argued for an extension of the payment standstill over a restructuring, and has been a strong supporter of using Russia’s USD 300bn frozen assets to fund Ukraine’s war effort and reconstruction.

Bluebay representatives were not available for comment. A spokesperson for Ukraine’s ad hoc bondholder committee declined to comment.

Talks between Ukraine’s advisors and those of its bondholders are ongoing, the second and a fourth source familiar said. The goal is to reach an agreement with the committee “as soon as possible”, the second source said.

Restructuring or standstill

The next review of Ukraine’s USD 15.6bn Extended Fund Facility (EFF) with the International Monetary Fund is expected to start later this month, with a view to agreeing to the next disbursement in late June.

The IMF’s debt-sustainability analysis of Ukraine implies the need for the country to restructure its debt under both a baseline and a downside scenario, which assumes a more intense and prolonged conflict.

JPMorgan analysis in early April showed recovery levels between high 30s and low 40s, corresponding to 40-45% of NPV relief for the country’s Eurobonds under a baseline scenario.

Ukraine’s GDP Warrants are expected to have a higher recovery rate of around the mid-60s, according to the same report.

Ukraine’s USD 1.6bn 9.75% 2030 bond is quoted at 30.56-bid on IHS Markit. The warrants are quoted at 51.38-bid.

If Ukraine and its commercial creditors cannot agree to a restructuring, an extension of the standstill remains an option, some have argued.

The country’s official creditors agreed in January to extend a debt moratorium until March 2027, in line with the end of the IMF programme.

If Ukraine ends up proposing a restructuring with limited or no coupon payments for the next three years, bondholders would have no reason to consent, according to a bondholder. A standstill extension, with a consent fee, would be preferable in his view.

“To get a deal done quickly, it needs to be generous, and yes, pay coupons,” said the third source familiar. “But the IMF does not want a generous deal. And paying coupons is not really logical for Ukraine.”

All eyes on official sector

The IMF programme includes political commitments from international partners to provide USD 122bn by 2027. The IMF is expected to contribute over USD 5bn to Ukraine in 2024 alone. 

Discussions around a plan to use the seized assets to help cover Ukraine’s large funding needs are expected to dominate upcoming G7 meetings in May and June.

The issue has proven divisive, with several European officials wary of the legal implications of an outright seizure, although Bloomberg reported that Germany has warmed to a US plan to use future revenue generated from the seized assets to Ukraine’s benefit.

The Council of the European Union approved the confiscation of profits from frozen Russia’s assets to aid Ukraine this week.

But according to the second source, Russia’s frozen assets debate is not affecting the timeline for Ukraine’s debt talks and is being treated as a separate issue, given all official sector approvals have been secured ahead of the commercial creditor negotiations.

Ukraine’s ministry of finance declined to comment on the restructuring process.

Related links

Ukraine credit report