The Ukrainian economy has endured unprecedented shocks resulting from the unprovoked invasion by Russia, which led to the seizure of assets in the occupied territories, massive destruction of or damage to assets throughout Ukraine, closure of a number of markets, disruption of various transport routes, huge losses in trade, flight of capital and human resources, etc.
Consequently, many businesses have been negatively affected by several of these factors, resulting in a number of restructuring and distressed asset scenarios. In spite of this, to date, we have yet to see many big debt restructurings compared with those seen during and after the 2008 and 2014 crises. Below are the factors which we believe are leading to this not happening.
First, a number of big players had already disappeared during those previous upheavals. These include steel giants like Industrial Union of Donbass and Donetsksteel, a number of agricultural groups, such as Mriya and Creative, and some 100 banks, wiped out or nationalized by the state in 2014-2015 and later.
Secondly, the status of the war makes it practically impossible to provide feasible new business plans to achieve a meaningful restructuring.
Thirdly, Ukrainian martial law imposes a number of restrictions for foreign lenders (with certain exemptions for international financial institutions and foreign development or export agencies) to repatriate loan proceeds ahead of the agreed amortization schedules while martial law is in effect. Creditors can, in theory, accelerate and commence insolvency, but they will not be able to repatriate the funds from Ukraine. The lack of perspectives of obtaining good returns in the current environment is another general deterrent.
As a result, with just a few exceptions, now typical means to resolve distressed situations are quick amend-and-extend solutions or the sale of an NPL. Recently, there was also a high-profile refinancing of Eurobonds by loans from several international financial institutions and a foreign development institution. The transaction providing for ‘new money’ to restructure payment obligations of the large agricultural group was truly remarkable in the midst of the war in Ukraine. A unique element of that transaction was usage of off-shore bank accounts structure, which is not typical for Ukraine.
Also, recently, the National Bank of Ukraine allowed state-owned enterprises to transfer funds abroad to fulfill their obligations to a non-resident under a loan that has been restructured on terms agreed by the Cabinet of Ministers of Ukraine.
By Olexiy Soshenko, Managing Partner, Redcliffe Partners
This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
