Ukraine has failed to agree on restructuring its debt with a group of international creditors led by hedge funds

© Getty Images / Emmanuele Contini/NurPhoto

Ukraine will not pay $665 million it owes to international creditors, the country’s Finance Ministry said in a statement on Friday. Kiev earlier failed to agree on restructuring terms with a group of debt holders led by hedge funds.

The payment concerns GDP-linked securities — debt tied to economic growth — totaling $2.6 billion, with $665 million due on June 2.

Ukraine was originally scheduled to make the payment a year ago, but a moratorium on bond settlements, approved by authorities in Kiev, allowed the cash-strapped country to avoid default. That moratorium will remain in place until the debt is restructured, the ministry said.

The Finance Ministry noted that under a 2024 agreement with international creditors, the so-called cross-default clause was removed.

That clause had stipulated that failure to pay on GDP warrants could trigger a default on other debt, including international bonds. With the clause removed, Ukraine is not required to declare a default on its international bonds, the ministry emphasized.

READ MORE: Ukraine’s debt doubles in three years – finance minister

In April, Ukrainian authorities said they had failed to reach a deal to restructure part of the country’s debt, with a nominal value of $3.2 billion.

According to Bloomberg, Ukraine offered investors two options during the unsuccessful talks, including a full exchange for sovereign bonds by reopening existing notes. However, creditors reportedly agreed only to restructure the May payment and demanded over $400 million in cash, as well as the conversion of more than $200 million into new bonds – a condition Kiev rejected.