Ukraine announces restructuring of GDP-linked warrants
MOSCOW. Dec 19 (Interfax) - Holders of 99.06% of Ukrainian GDP-linked warrants totaling $2.635 billion have endorsed the deal to fully swap them for Ukraine's standard Eurobonds, Ukrainian media said, citing a stock exchange report.
Under the terms of the restructuring deal, Ukraine will convert nearly the entire outstanding notional amount of warrants into a new class of C notes due in 2032 at a 1.34 ratio in the amount of $3.498 billion (with a small number of warrants converted into further B notes due in 2030 and 2034 in the amount of $16.91 million each), media outlets said, citing a Ukrainian Finance Ministry statement.
Under the baseline terms of the deal, 45% of the principal amount of the new class C Eurobonds will be repaid on February 1, 2030 and 2031, while the remaining 10% on February 1, 2032. The interest rate on these bonds will be 4% per annum from their issuance until February 1, 2027, then 5.5% per annum until August 1, 2029, and 7.25% per annum for the remaining period until maturity.
In addition, Ukraine will pay a cash incentive of up to 7%. According to the Finance Ministry's resolution on the restructuring terms, the exchange fee would not exceed $52.7 million, while the total consent fee and outcome fee combined would amount to $129.56 million.
As part of the transaction, Ukraine will also annul GDP warrants worth $604.26 million, which are owned by the state, but the National Bank of Ukraine's GDP warrants worth $43/84 million will take part in the swap.
As a result, Ukraine will fully withdraw this instrument from circulation.
Finance Ministry estimates suggest that aggregate payouts under the warrants between 2025 and 2041 could have amounted to between $6 billion and $20 billion, depending on Ukraine's economic growth rate during the recovery period. Such extreme volatility is due to the nature of the tool itself, with payouts being uncapped after 2025 and linked to year-on-year real GDP growth without protection against the future risk of economic downturns followed by sharp growth rebounds resulting in payouts unjustified by economic realities. Payments under the warrants are triggered if year-on-year real GDP growth exceeds 3% and nominal GDP is above $125.4 billion and are calculated as 15% of Ukraine's year-on-year growth above 3% and below 4%, and 40% or growth above 4%.
Ukraine's GDP contracted by nearly 30% in 2022 because of the crisis. In 2023, the Ukrainian economy saw 5.3% growth, triggering a $643-million claim under the warrants despite the absence of real improvements in the country's economic situation. This claim has been addressed in full as part of the current transaction.
"Converting the warrants into standard fixed-income bonds with the aggregation mechanism brings predictability and reduces long-term volatility for public finances. We are retiring a toxic instrument that has become a serious fiscal risk for Ukraine and could have undermined our recovery and reconstruction," media outlets quoted Ukrainian Finance Minister Sergei Marchenko as saying.
"With the positive outcome of Ukraine's invitation, the restructuring process will proceed to the settlement phase in the coming days and will be completed before the end of the year," media quoted Government Commissioner for Public Debt Management Yury Butsa as saying.
