11:26 28.08.2015

Cabinet approves formulas of GDP-pegged payments for 2021-2041 on debt restructuring

3 min read
Cabinet approves formulas of GDP-pegged payments for 2021-2041 on debt restructuring

The Ukrainian government in cabinet resolution No. 859 of August 27, 2015 approved the preliminary conditions of the issue of value recovery instruments (VRI, bonds) pegged to GDP indicators.

"[The bonds] would not have the principal of the loan, but the bonds pegged to GDP indicators that would be presented during the calculations of the exchange offers. They would have the conventional sum equal to the relevant primary nominal sum of the existing bonds that are written down, [and the concrete mechanism is to be discussed]," reads the resolution.

According to the resolution, the first possible date of payment will be January 15, 2021 after the indicator of GDP for 2019 is received. Then payments would be settled every year (for example, on January 15), at least a year after announcing the GDP indicators are announced.

Under these conditions, these instruments cannot be bought back in advance of the issue terms and would first be separated from new bonds to which the existing eurobonds of Ukraine would be exchanged.

According to the resolution, all payments will be settled in U.S. dollars. If within a year GDP is below 3%, or nominal GDP is less than $125.4 billion, no payments would be settled.

If real GDP grows by between 3-4%, 15% of the value of the GDP growth would be paid, and if it grows by above 4%, 40% of the value of the GDP growth would be paid.

The calculation formulas are the following:

"If 3% ≤ growth of real GDPt-2≤ 4%, payment = 15% х nominal GDP in hryvnias -3х (1+deflator GDPt-2) х (growth of real GDPt-2 - 3%).

"If growth of real GDPt-2 >4%, payment t = 15% х nominal GDP in hryvnias -3 х (1+ deflator GDPt-2) х 1% + 40% х nominal GDP in hryvnias -3 х (1+ deflator GDPt-2) х (growth of real GDPt-2 - 4%)", – if growth is above 4% a year."

The resolution states that payments on new instruments will be settled in U.S. dollars via conversion of sums in hryvnias to U.S. dollars under the exchange rate that would be agreed (for example, taking into account the average rate and the agreed source).

The total payments are capped at 1% of GDP from 2021 until 2025, and it would be calculated in hryvnias.

"Methods of distributing VRIs will be agreed," reads the resolution.

The definition of GDP, and process and compliance standards, are also to be agreed.

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