After nearly six months of arduous negotiations, Ukraine reached a deal with creditors overnight to restructure its debt—a key requirement for the country to continue getting support from the International Monetary Fund.
"I'm extremely thrilled that we were able to reach such a good agreement," Ukrainian Finance Minister Natalie Jaresko told CNBC.
The deal covers bonds with outstanding principal of $18 billion. Creditors have accepted a 20 percent reduction in face value, providing Ukraine with $3.6 billion in debt relief, according to a fact sheet put out jointly by the Ukraine Ministry of Finance and its creditors, which include Franklin Templeton, T. Rowe Price, Brazilian investment bank BTG Pactual and asset management firm TCW.
"That's an enormous amount for us," Jaresko said.
Ukraine also gets much more time to pay back what it still owes the creditors under terms of the deal, with principal repayments not due to start until 2019.
Ukraine's economy has struggled since Russia, angered by Ukraine's growing ties with the European Union and United States, invaded the country last year. Russia took the country's Crimea province and still closely supports anti-government fighters in other provinces. The IMF approved a $17.5 billion loan program to Ukraine this year.
There is also a "sweetener" for creditors in this week's deal, in the form of GDP warrants—meaning creditors will receive more money the more the Ukrainian economy grows. The country doesn't have to pay them until GDP growth hits 3 percent. Ukraine's economy has shrunk since fighting started there, with the World Bank forecasting negative annual growth of 7.5 percent in 2015.
Jaresko acknowledged the next step is to institute reforms so the economy does grow, including major tax reform, privatization of state-owned enterprises, fixing the banking sector and, perhaps most importantly, dramatic reductions in both corruption and regulation.
"That'll tell foreign investors that we mean what we say, in terms of transparency, in terms of openness. ... There's no end to the things we are responsible for doing, but I think all of it together will put us squarely where we need to be next year," with growth in the range of 2 percent, she said.
An outstanding question is whether Russia will participate in the restructuring. A bond of $3 billion, which is due for repayment in December, is included in this week's deal. But the next step is for bondholders to tender those bonds in an exchange that will happen in September or October.
Jaresko said that if Russia doesn't tender its bonds but instead decides to be a holdout creditor, "Then the Ukrainian government will continue to move toward alternative solutions, but I think the prime minister said very clearly this morning in a live press (conference) that no better terms can be offered—these are the best terms that can be offered."
In the joint statement, Igor Hordiyevych of BTG Pactual, Michael Hasenstab of Franklin Advisers, Penny Foley of TCW and Mike Conelius of T. Rowe Price, said: "This agreement is confirmation of the private sector's confidence and belief in Ukraine and our willingness to invest in its future recovery. The committee echoes the minister's call for bondholders to support the deal and urges the official sector to follow its lead by providing Ukraine with nondebt support in the form of grants."
Ultimately, Jaresko said with the deal, she wants to send the following message to the international markets, "We are a European country, trying to make decisions that are European-market friendly, and that we want to restore the investment climate here."