Ukraine launches offer to swap GDP warrants worth $2.6 bln for 2032 Eurobonds at 1.34 ratio

MOSCOW. Dec 2 (Interfax) - Ukraine has launched an offer for holders of GDP-linked warrants issued at a nominal value of nearly $2.6 billion to swap them at a ratio of 1.34 for Ukraine's new amortized Eurobonds B, which mature in 2030-2032, and to pay a cash reward of up to 7% for the exchange, Ukrainian media said, citing the offer published on the Irish Stock Exchange and the Ukrainian government's December 1 resolution.

At a round of negotiations on November 25-30, Ukraine and the ad hoc committee of holders of GDP-linked warrants made serious progress on the terms of the swap but will continue to work in the coming days to reach full agreement in order to be able to include the results of these consultations in the corresponding amendments to the swap memorandum before December 5, the resolution said.

The basic terms stipulate that 45% of the principal amount of the new Eurobonds B will be redeemed on February 1, 2030 and February 1, 2031, while the remaining 10% will be redeemed on February 1, 2032.

The coupon rate on these bonds will be 4% per annum from issuance until February 1, 2027, and then 5.5% per annum until August 1, 2029, and 7.25% per annum for the remaining period until maturity.

Holders of GDP-linked warrants who will agree to the swap during the early consent period, i.e. through December 12, will receive an additional cash incentive of 7% ($70 per $1,000 of nominal GDP warrants), while those who will agree between December 13 and 17 will receive 4.5%.

Those who will not participate in the swap, if it is approved, will receive other Eurobonds with a total coefficient of 1.36: Eurobonds B issued during the 2024 restructuring. They will receive 0.68 of the Eurobonds maturing in 2030 and 0.68 of the Eurobonds maturing in 2034 with a zero coupon until February 1, 2027, 3% until August 1, 2033, and 7.75% per annum afterwards.

The quorum needed for the decision to be approved is 75% of the total minimal amount. The decision is expected to be made public on December 22.

At the same time, Ukraine may initiate their delisting from the exchange even if there is consent from 50% of GDP warrant holders.

According to information from the Frankfurt Stock Exchange, Ukraine GDP-linked warrants rose 0.66% on Monday to 92.15% of their nominal value. They last cost more back in October 2021, after which their price sometimes fell below 20% of the nominal.

As reported, Ukrainian officials held limited discussions between October 16 and November 5 with members of the ad hoc committee of institutional holders of Ukraine's outstanding GDP-linked securities (warrants) to propose a restructuring of these instruments.

The holders of Ukraine's GDP-linked warrants include hedge funds Aurelius Capital Management LP and VR Capital Group. Ukraine was joined at the talks by its legal and financial advisors, White & Case LLP and Rothschild & Co, and the ad hoc committee was joined by its legal and financial advisors Cleary Gottlieb Steen & Hamilton LLP and PJT Partners (UK) Ltd.

The Finance Ministry said after the round of negotiations in the fall that Ukraine intends to continue engagement with holders of the warrants and consider all available options for the restructuring of the warrants, consistent with three objectives: restoring debt sustainability in line with Ukraine's International Monetary Fund Extended Fund Facility Program; Ukraine's commitment made in connection with the Eurobond restructuring in August 2024 to ensure appropriate burden sharing across all commercial claims within the restructuring perimeter; and the government's moratorium approved on August 27, 2024 on payments under the warrants from and after May 31, 2025 until the completion of the restructuring of the warrants.

Ukraine's second transaction proposed at the fall talks included a compensation for the missed payment under the warrants in respect of the reference year 2023, which was due on June 2, 2025 and an exchange of warrants for a package of cash and a new series of sovereign bonds ("C Bonds"). Consenting holders would receive $60 in cash and Type C bonds with a nominal value of $1,260 for $1,000 notional amount of warrants. The C Bonds would be redeemed over three equal instalments on January 30 in 2030, 2031 and 2032. Interest would be payable on the C Bonds on a semi-annual basis: 2026-2027 - 2.50%, 2028-2029 - 4.00% and 2030-2033 - 6.00%.