Ukraine reaches debt relief deal with creditors

The Ukrainian government said Thursday it has reached a crucial deal with its international bondholders to lighten its public debt burden, a move that will help the country avoid default as it tries to get its economy growing again.

The value of Ukraine's $19 billion (about 16.8 billion euros) sovereign debt held by bondholders will be cut by 20 percent to $15.5 billion, Prime Minister Arseniy Yatsenyuk told the government.

The agreement ends more than five months of negotiations aimed at plugging the funding gap in Ukraine's finances, which are suffering from the economic damage of the fighting in the east with pro-Russian separatists.

A statement released by the finance ministry said the deal would also extend the payment period on the government bonds by four years through 2027.

"The deal agrees a 20 percent haircut on Ukraine's stock of sovereign and sovereign guaranteed debt, having immediate debt relief totalling approximately $3.6 billion," the finance ministry said.

"It's a win-win situation"

The announcement marks a monumental victory for Ukrainian Finance Minister Natalie Jaresko - a US-born financial expert whom President Petro Poroshenko plucked from a Kyiv investment firm in December and tasked with saving the war-torn country from hurtling into default.

"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," Jaresko said.

Kyiv hailed the agreement as a "critical step towards macroeconomic stability, creating a healthy economy and attracting international investment."

Under the deal, Ukraine's repayments on its bonds will depend on how quickly the economy, battered by a separatist war in the east, grows. Ukraine will pay nothing on its bonds if its economy grows less than 3 percent annually.

The deal is "creating a virtuous economic circle for Ukraine and its international commercial creditors who also have a vested interest in seeing Ukraine's economy thrive," the finance ministry said in the statement.

In Moscow, Russian Finance Minister Anton Siluanov said Russia would not participate in the agreement. Ukraine owes Russia a $3 billion eurobond due for full repayment in December. Ukraine will not offer a better debt deal to Russia than to other creditors, Yatsenyuk said in a government meeting, claiming that "in no circumstances will Russia receive better terms than other creditors."

Ukrainian military reports casualties

The deal comes after Kyiv and pro-Russian separatists in its east have agreed to end all violations to the peace deal that was signed in Minsk earlier this year.

The two sides agreed to establish peace in Ukraine's eastern region and "jointly verify the fulfilment of this [the Minsk deal] initiative," the Organization for Security and Cooperation in Europe's (OSCE) official Martin Sajdik told reporters.

However, only hours after this announcement, Reuters reported that Ukraine's military spokesman Oleksander Motuzyanyk said seven Ukrainian servicemen had been killed and 13 wounded in fighting with pro-Russian separatists. The casualties were the highest daily losses for the Ukrainian army since mid-July, as violence continues to test a six-month-old ceasefire deal, the report stated.

dr/msh (AP, AFP, Reuters)