By Libby George and Rodrigo Campos

LONDON/NEW YORK (Reuters) -Ukraine on Friday kicked off the formal creditor approval process of its offer to restructure some $20 billion of international bonds, a key step in the war-torn country’s debt rework.

Holders of its international bonds have until Aug. 27 to agree to the proposal, which was announced by the government on July 22. Ukraine is offering a consent fee to bondholders who consent by Aug. 23.

Both the International Monetary Fund and official bilateral creditors gave their approval to Kyiv’s offer.

“The Group confirms it is comfortable with the agreement that has been confirmed by the IMF staff as compatible with the debt sustainability objectives,” the Group of Creditors of Ukraine (GCU) said in a statement, and encouraged bondholders to “consent to this request in a swift manner.”

IMF head Kristalina Georgieva said “the successful implementation of  this agreement will provide significant debt-service relief, creating room for critical spending and supporting growth.”

The consent solicitation also seeks bondholder sign-off on the rework of state-owned road agency Ukravtodor’s $700-million bond, under the same terms as the government’s debt, raising the total outstanding value of the included bonds to $20.5 billion.

Ukraine’s 2028 maturity priced in euros last traded 0.55 cent higher at 26.05 cents and the 2028 dollar issue rose 1.5 cents to 33.5 cents, according to LSEG data.

DEAL DURING WARTIME

Ukraine defaulted on its bonds by invoking a law allowing it to skip international debt payments in advance of a coupon payment due on Aug. 1, when a two-year debt moratorium expired.

The default is expected to be short-lived, much like a similar default in 2015, as it finalises the restructuring deal. The country chose to push for an unprecedented wartime restructuring rather than seek to extend the payment pause.

The restructuring, which is Ukraine’s second in a decade prompted by a Russian invasion, has moved at a breakneck pace; if bondholders sign off, the process will have taken roughly five months, compared with nearly four years for Zambia’s debt rework.

In a statement, the ad hoc creditor committee, which negotiated the deal with the government and holds roughly 20% of the bonds, urged bondholders to vote in favor.

“The exchange would provide significant debt relief to Ukraine, assist its efforts to regain access to the international capital markets, and support the future reconstruction of the country to the benefit of the Ukrainian people,” it said.

Bond investors will see a 37% haircut to the face value of their holding if they consent to the exchange.

Two-thirds of the overall number of bondholders must sign off, along with a simple majority of 50% on each of the individual series, in order to approve the restructuring.

The bonds initially surged after the government unveiled the proposal in late July, indicating that buyers thought favourably of the plan.

(Reporting By Libby George and Rodrigo Campos; Editing by William Maclean, Philippa Fletcher, Rod Nickel and Diane Craft)

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