IMF takes note of Ukraine's GDP warrant restructuring offer

MOSCOW. Dec 5 (Interfax) - The International Monetary Fund (IMF) has taken note of the restructuring offer launched by Ukraine for holders of GDP-linked warrants on December 1, Ukrainian media reported, quoting IMF spokesperson Julie Kozack as saying.

"We're closely monitoring the response, and we're also analyzing the proposed terms of the offer," Ukrainian media quoted Kozack as saying at an IMF press briefing on Thursday.

As always, any debt restructuring agreement will be assessed in the context of ensuring debt sustainability and adequate financing or the financing assurances that Ukraine will need as part of the program, she said.

"IMF resources are intended to provide balance of payments support to help restore growth, and they're not directly linked to any repayment of any outstanding debts," Kozack said when asked why the amount of the potential new four-year IMF loan program of $8.2 billion for Ukraine is comparable to the volume of Ukraine's payments during this period.

As reported, Ukraine on December 1 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. 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.

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.

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.

Ukraine reached an agreement with holders of its GDP warrants in August 2022 to revise the conditions on them, specifically, to defer payments due in 2023 by 14 months, limit the possible amount of payments in 2025 for 2023 at 0.5% of GDP, extend the duration of these instruments by a year, until 2039, and also give Ukraine the right to completely or partially repurchase them in 2024-2027. It was agreed that the payment due on May 31, 2023 for strong economic growth in 2021 would be deferred until August 1, 2024, and it would accrue 7.75% interest per annum.

Under the initial terms of the GDP warrants, which were issued as part of restructuring Ukraine's government debt in 2015 in exchange for Eurobonds for a conditional amount of around $3.239 billion, if GDP growth is lower than 3% for the year, no payments are made on the warrants. If real GDP grows by 3% to 4%, the payment on the warrants is 15% of the amount by which GDP exceeds 3%, and if growth is higher than 4%, another 40% of the amount by which GDP exceeds 4% is paid. However, payments were initially restricted to 1% of GDP from 2021 through 2025. The absence of such restrictions on payments after 2025 in the event of strong GDP growth was criticized by some politicians and experts in the country.

Before the crisis, the Ukrainian Finance Ministry bought back GDP warrants for a total nominal value of $604.262 million. The National Bank of Ukraine also holds GDP warrants worth $43.839 million.