In 2021 Finance Ministry gains right to change govt domestic loan bonds from additional capitalization of state-owned banks to market ones, re-purchase GDP warrants
For the first time, the Finance Ministry of Ukraine gained the right, by the decision of the Cabinet of Ministers, to exchange on market conditions government domestic loan bonds, which were previously issued to replenish charter capitals of banks, for new government domestic loan bonds with a corresponding adjustment of the ceiling amount of public debt.
The relevant provision is contained in the law on the 2021 national budget of Ukraine, which was promulgated by the Finance Ministry on Monday.
As reported, over the past ten years, the volume of additional capitalization of banks at the expense of government domestic loan bonds exceeded UAH 270 billion, only an insignificant part of these bonds was monetized by the National Bank. As a rule, within the additional capitalization, government domestic loan bonds are issued with a maturity of 15 years or more.
In addition, the 2021 national budget extended for a year the norm on the Ministry of Finance's right to carry out transactions with government derivatives (GDP warrants), which was first introduced in 2019, for a year, including their exchange, issue, purchase, redemption and sale through government borrowing. The terms of such transactions are determined by the Cabinet of Ministers.
GDP warrants were issued as part of the restructuring of Ukraine's public debt in 2015 to replace eurobonds for a nominal amount of $3.2 billion (20% of the restructuring volume) and are not part of the country's public debt. Payments under GDP warrants will be carried out annually in cash in U.S. dollars, depending on the dynamics of real GDP growth in Ukraine from 2019 to 2038, but in two calendar years, that is, between 2021 and 2040.
If GDP growth for the year is below 3% or real GDP is less than $125.4 billion, then there will be no payments on securities. If the growth of real GDP is from 3% to 4%, the payment on securities will be 15% of the excess of the GDP over 3%, and if it is above 4%, then another 40% of the excess of the GDP over 4%. In addition, from 2021 to 2025, payments are capped at 1% of GDP.
Ukraine in the middle of August 2020 announced the completion of the debut buyback on the open market of about 11% of its GDP warrants to reduce payments on them in the future. Tentative payments on GDP warrants in 2021 before their partial redemption were estimated at $40 million.