Ukraine Passes Another Debt Restructuring Milestone – Ukrenergo Agrees New Creditors’ Bond Terms

Ukraine’s state-owned electricity transmission system operator Ukrenergo has renegotiated terms for “green bonds”, issued in 2021 under previous CEO Volodymyr Kudrytsky, following Russia’s 2022 full-scale invasion. The 5-year Green and Sustainability-linked Eurobond was worth a total of $825 million at a 6.875 percent yield. 

Ukrenegro reported it had agreed terms with an ad hoc group representing approximately 40% of the bond holders, offering them two options: a bond buyback or a bond swap. 

Under a buyback option, Ukrenergo will borrow $430 million (with help from a development finance institution) to buy back some of the bonds now – at a discount.

Bondholders can sell their bonds back to Ukrenergo for about 65% of their face value, plus interest. If more people want to sell than the budget allows, payment would be made proportionally.

Under a bond swap, bond holders can exchange the old “green” bonds issued in 2021 for a new issue for which Ukrenergo will pay 8.5% interest, which they will gradually repay between 2028 and 2031.

However, the swapped bonds will have no Ukrainian government guarantee to repay the money in the event of a fresh crisis. 

If too few people sell their bonds or agree to the exchange, Ukrenergo may automatically convert some of the remaining bonds into new, but at a worse rate (only 80 cents on the dollar).

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If the buyback offer is undersubscribed, unused funds will be reallocated:

• to the buyback of unsubmitted bonds at 60% of face value plus interest.

• to partial buyback of bonds submitted for exchange, at the lower of 68.7% of value and accrued interest, or a price that ensures the average repurchase price remains at 67.125%.

The transaction will only proceed if a majority of bondholders approve proposed changes to bond terms and the state guarantee. Without this approval, neither the financing nor the debt operation will proceed.

Ukrenegro needed debt restructuring to allocate more cash in reconstruction of the grid after Russia’s strikes on energy infrastructure. Russian forces destroyed or severely damaged all thermal power stations in the country that produced electric energy and damaged the power transmission network.

Renegotiating Ukrenergo debt is one of significant milestones in overall Ukraine’s debt restructuring. 

Previously, payments for Ukrenergo Eurobonds, that should have matured on Nov. 9, 2028, were suspended.

Ukrzaliznytsyan [the national railway] bonds and sovereign GDP warrants remained the last assets that should be renegotiated with the creditors. Ukraine’s Ministry of Finance is currently renegotiating sovereign GDP warrants, and Kyiv Post previously reported the first round of discussions was unsuccessful.