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The UK has been encouraged to shield Ukraine from legal repercussions stemming from its default on private debts.

Campaigners are pressing the new Labour government in the UK to shield Ukraine from potential lawsuits in British courts if the country defaults on debts owed to private creditors.

According to Debt Justice, Ukraine’s two-year suspension of debt payments is set to end on 1 August, and immediate action is necessary to safeguard Kyiv from legal actions by creditors.

Ukraine is currently negotiating with bondholders, seeking a substantial reduction of 60% on its $24 billion (£18.7 billion) debt to private creditors. Major investment groups like BlackRock, Pimco, Fidelity, and AllianceBernstein, who hold Ukraine’s bonds, have indicated willingness to accept a 20% loss.

While Ukraine’s official bilateral creditors, including the UK, have agreed to extend Kyiv’s debt payment suspension until 2027, no such agreement has been reached with private creditors. The relief offered by private creditors amounts to approximately 12% of Ukraine’s annual GDP. Without a new agreement or extension of the moratorium by the end of this month, Ukraine will officially default on its debts in September.

Kyiv is concerned that once the 1 August deadline passes, asset managers may sell bonds to hedge funds that could then initiate legal action. Since Ukraine’s bonds are governed by English law, any legal disputes would be handled in UK courts.

Debt Justice noted that Ukraine’s bonds are trading at 28-31 cents on the dollar, aligning more closely with Kyiv’s proposed 60% reduction rather than the 20% offered by bondholders.

Heidi Chow, Executive Director of Debt Justice, emphasized that Ukraine, currently resisting an invasion, should not face additional pressure from bondholders seeking maximum profit. She argued that these loans were originally offered at high interest rates due to perceived risk, which has now materialized with Russia’s invasion.

Chow proposed that the UK government could pass legislation to prevent creditors from suing Ukraine while it negotiates in good faith. This, she believes, would provide Ukraine with the necessary political and legal protection to sustain the current debt suspension until bondholders are willing to agree to the needed debt restructuring.

Previously, the Commons international development select committee and the Labour opposition expressed support for legislation requiring private creditors to participate in debt relief efforts.

di Il Quotidiano Online

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