Since the war began in 2022, Ukraine’s economy has suffered its biggest losses since independence, among other problems. All participants in the financial sector have experienced severe damage.
The National Bank of Ukraine (“NBU”) imposed a moratorium on cross-border payments to resolve the situation and adapt to the current environment to the extent possible. As the situation improved over time the NBU developed a Currency Restrictions Mitigation Strategy and made step changes similar to those set out in the Strategy, allowing a wider range of transactions during the martial law period.
At this stage, the first priority of the state should be the adaptation and recovery of the economy in the current circumstances, and, in this regard, the maximisation of all resources that will help to facilitate the smooth execution of investment projects no matter their scale.
In June 2023, a series of exemptions were introduced to allow Ukrainian borrowers to repay new loans to all foreign creditors. A separate exemption was introduced to development finance institutions including credit agencies (“DFIs”). However, the relaxation explicitly prohibited borrowers from making any early repayments, whether voluntary or resulting from acceleration in the case of an event of default. This restriction posed a significant challenge for DFls in taking decisions to provide financing to Ukraine while international financial institutions (e.g., EBRD, IFC, NIB, NEFCO, BSTDB &c.) are fully exempted from the payment moratorium.
Responding to requests from DFIs, on 6 October 2023 the National Bank of Ukraine expressly permitted early repayments in any form for DFI loans executed after 20 June 2023. This is an extremely important development because, given a lack of financings from international private banks and closure of external bond markets for Ukraine, the role of foreign development institutions of various ally countries, along with the international finance institutions, is pivotal in supporting and rebuilding Ukraine. Yet this exemption is not available to banking institutions and other foreign creditors.
We are pleased to say that Redcliffe Partners played an active role in advocating these changes.
In parallel, the NBU allowed state-owned enterprises (100% owned by the state) to transfer funds abroad to fulfil their obligations to a non-resident under a loan that has been restructured on terms agreed by the Cabinet of Ministers of Ukraine. This also includes the ability to service such restructured obligations.
The NBU is still considering the position of certain easements with payments of dividends and/or accrued interest under ‘old’ loans.