Zelenskiy signs law allowing Ukraine debt payment suspension

KYIV (Reuters) - Ukraine's President Volodymyr Zelenskiy has signed a law allowing the government to suspend foreign debt payments until Oct. 1, paving the way for a moratorium to be called that would formally mark a sovereign default.

Earlier this month, Ukraine announced a preliminary deal with a committee of its main bondholders to restructure its near $20 billion worth of international debt.

Prompted by Russia's 2022 full-scale invasion, it will be its second such rework in a decade following a similar deal after the 2014 invasion of Crimea.

A two-year payment moratorium on those bonds expires on Aug. 1.

Bondholders still must approve the deal, which they are expected to do, though the technicalities behind it could take weeks.

But a short-term default would have a less significant impact on its long-term borrowing prospects than a default with no deal in sight.

The proposal would see a 37% nominal haircut on Ukraine's outstanding international bonds, saving Kyiv $11.4 billion in payments over the next three years - the duration of the country's programme with the International Monetary Fund, according to government statements.

Ukraine also owes a $34 million coupon payment on its 2026 Eurobond due on Aug. 1, with a 10-day grace period.

Ukraine's finance minister Sehriy Marchenko earlier hailed the deal with bondholders. But he also told RBC-Ukraine outlet that the negotiations were not easy, citing "significant differences" in the assessment of the situation Ukraine finds itself in.

(Reporting by Yuliia Dysa; Editing by Andrew Heavens and Conor Humphries)