May 28, 2015 / 9:03 AM / 3 years ago

UPDATE 1-U.S.-backed bonds should cut Ukraine's debt servicing costs, aid economy - finance ministry

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KIEV, May 28 (Reuters) - Ukraine on Thursday confirmed it was raising $1 billion by selling new bonds backed by the U.S. government and said the issue should contribute to cutting its international debt servicing costs.

The finance ministry said in a statement that, if successful, the issue, together with other moves to restructure huge foreign debts, should potentially create conditions for a return to economic growth.

Near-bankrupt Ukraine is seeking to restructure $23 billion of foreign debt in order to make budget savings of $15.3 billion between 2015 and 2018 which would make it eligible for further disbursements of credit under an International Monetary Fund-led programme.

“The bonds, alongside the recent European Union macro financial assistance, are intended to replace existing debt with more serviceable and less expensive international obligations,” the statement said.

“If successful, this bond issue, the Ukreximbank debt operation, and the contemplated sovereign debt operation, are expected to result in a reduction of Ukraine’s debt burden potentially creating the conditions for a return to economic growth,” it said.

State-run Ukreximbank announced last Tuesday it had tied up a deal with a bondholders’ committee to extend maturities on $1.5 billion of Eurobonds, becoming the first debt-owing entity to reach a preliminary agreement with creditors.

The finance ministry confirmed that a guarantee from the United States Agency for International Development (USAID) allowed Ukraine to pay a yield of just 1.85 percent on the new issue, far below the level at which its outstanding sovereign debt is trading, helping to cut overall funding costs. (Writing By Richard Balmforth; Editing by Toby Chopra)

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