Ukraine announces successful restructuring of GDP-warrants: deal supported by 99% of holders
Holders of 99.06% of GDP-linked warrants, which are in circulation for a total amount of $2.635 billion, supported their full exchange for ordinary eurobonds of Ukraine, the Ukrainian stock exchange said in a statement on Thursday.
"This transaction will strengthen the government’s further steps to enhance macroeconomic stability and public debt sustainability, making it possible to avoid significant payments during the post-war reconstruction period and to preserve the resources needed to finance the country’s defense amid the full-scale invasion by Russia," Ukraine’s Ministry of Finance commented on the outcome.
It is noted that under the terms of the exchange, Ukraine will convert almost the entire outstanding principal amount of GDP-linked warrants into a new class of C bonds maturing in 2032, with a conversion ratio of 1.34, totaling approximately $3.497 billion (with a small portion converted into Class B bonds issued during last year’s eurobond restructuring, maturing in 2030 and 2034, in the amount of $16.91 million).
The baseline terms provide that 45% of the principal amount of the new Class C eurobonds will be repaid on February 1, 2030, and 2031, while the remaining 10% will be repaid 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 consideration of up to 7% for the exchange. The Cabinet of Ministers’ resolution on the restructuring terms stated that 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 this transaction, Ukraine will also cancel GDP-linked warrants totaling $604.26 million that are held by the state, while GDP-linked warrants worth $43.84 million held by the National Bank of Ukraine will participate in the exchange.
As a result, Ukraine will fully withdraw this instrument from circulation.
According to calculations by the Ministry of Finance, total payments under the GDP-linked warrants without their restructuring in 2025-2041 could have amounted to between $6 billion and $20 billion, depending on the pace of the country’s economic growth during the recovery period. Such excessive volatility is inherent in the nature of this instrument: after 2025, payments are uncapped and linked to annual real GDP growth, with no protection against the risk of economic downturns followed by sharp rebounds, which can result in payments that do not correspond to economic reality. Payments under the GDP-linked warrants would be due if annual real GDP growth exceeds 3% and are calculated as 15% of annual GDP growth between 3% and 4%, and 40% of real GDP growth above 4%.
Ukraine’s GDP contracted by nearly 30% in 2022 due to Russia’s full-scale invasion. In 2023, the economy grew by 5.3%, triggering a payment claim under the GDP-linked warrants in the amount of $643 million, despite the absence of any real improvement in the country’s economic situation. This claim was fully settled as part of the current transaction.
"This restructuring will allow Ukraine to save billions of dollars in potential payments during the post-war recovery period. Converting GDP-linked warrants into standard debt instruments with an aggregation mechanism ensures predictability and reduces long-term volatility in public finances. We are removing from circulation a toxic instrument that posed a serious fiscal risk to Ukraine and could have jeopardized our recovery and reconstruction," Finance Minister Serhiy Marchenko emphasized.
According to him, completing the agreement on the restructuring of GDP-linked warrants will help Ukraine achieve the debt targets set out in the IMF program and will meet the expectations of bilateral partners – the Group of Creditors of Ukraine.
"Thanks to the positive outcome of the vote on Ukraine’s proposal announced on December 1, the restructuring process is now moving to the settlement stage, which will take place in the coming days and be completed by the end of the current year," added Yuriy Butsa, the Government Commissioner for Public Debt Management.