Ukraine clears law on suspending debt payments, resumes formal bondholder talks

By Yuliia Dysa, Olena Harmash and Libby George

KYIV/LONDON (Reuters) -Ukraine's parliament passed a law on Thursday allowing the government to suspend foreign debt payments, just as it resumed formal talks with bondholders to restructure some $20 billion in debt.

Ukraine, now into its 29th month of war with invading Russian forces, is in the middle of an unprecedented push to restructure its bond debts before a payment moratorium expires on August 1.

"It is an important element of the restructuring that will allow savings of more than $10 billion on debt servicing on Eurobonds by the end of 2027," Roksolana Pidlasa, chair of the parliamentary budget committee, said on Facebook.

Also on Thursday, three sources told Reuters that bondholders and the government had entered a second round of formal talks to restructure the debt.

The first round of formal talks concluded last month without a deal - and with a sizeable gap between the government proposal and what bondholders had outlined.

Ukraine's finance ministry declined to comment on the debt talks.

However, it said in a statement that the new law would allow the suspension of payments on all state and state-guaranteed debt with private, external creditors until a debt rework deal, in line with International Monetary Fund parameters, was fully concluded.

"The adoption of the law provides Ukraine with the necessary flexibility ahead of reaching an agreement in principle with private creditors," the ministry statement said.

The ministry said the payment due on August 1 was a $35 million coupon on the 2026 bond.

In her post, Pidlasa said the suspension would be invoked if an agreement was not reached by August 10.

A spokesperson for the bondholder group declined to comment. The IMF did not immediately comment.

WARRANTS

Ukraine has $19.7 billion outstanding on its international bonds and owes $2.6 billion on GDP warrants - a fixed-income instrument with payouts that are linked to the strength of growth in economic output.

The warrants were created as a sweetener to creditors during Ukraine's 2015 debt restructuring in the wake of Russia's annexation of Crimea.

In a call with investors earlier this month, sources told Reuters that Ukraine said it intended to restructure the warrants during the current talks - a change from its earlier plans.

Warrant payments are included in the IMF's debt sustainability analysis (DSA), and paying those holders would syphon money away from the largely token coupon payments that the government proposed to make to bondholders under the restructuring.

Ukraine's sovereign dollar bonds barely moved on Thursday, but were trading between 29.34 to 31.26 cents on the dollar, roughly 2 cents above the level when the first talks derailed. The increase suggested hope that a deal could be reached.

Ukraine previously enacted a debt payment moratorium law in May 2015 amid restructuring talks. That year, it reached an agreement in principle with investors at the end of August, and announced the settlement of the transaction in November.

(Reporting by Yuliia Dysa and Olena HarmashEditing by Gareth Jones)