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Ukraine has won the backing of a key group of investors for a restructuring of $2.6bn in growth-linked debts which Kyiv needs to shore up financing of its war effort against Russia’s invasion.
Ukraine’s finance ministry said on Tuesday that a committee of holders of its so-called GDP warrants would accept an offer to swap them into new bonds after it finalised insurance against the risk of a further restructuring.
A committee of holders of the warrants said on Tuesday that it was backing Ukraine’s offer after talks to enhance this debt insurance. “These negotiations have resulted in significant improvements to the drafting of the terms” of the bonds, the committee said.
The Ukrainian finance ministry said that the deal “represents the best possible solution to comply with Ukraine’s long-standing commitment to restructure the warrants to help restore Ukraine’s debt sustainability.”
The restructuring of the GDP warrants shows how Ukraine is having to overhaul its public finances both for the consequences of a potential peace deal next year, and the risk of a longer conflict that could lead it to ask private bondholders to take more losses.
Ukraine is waiting for the approval of a new $8bn IMF bailout and the outcome of European talks on a possible “reparations loan” backed by Russia’s frozen assets.
By turning the warrants into bonds, Ukraine would be off the hook for annual payments running potentially to billions of dollars if reconstruction after Russia’s invasion were to spark to an economic boom.
The warrants were originally issued in 2015 under a restructuring of Ukraine’s debt following Russia’s annexation of Crimea. They were left out of a restructuring of more than $20bn in dollar bonds last year.
Under a so-called “loss reinstatement” provision, the face value of the new bonds will at least double if Ukraine seeks to restructure them from next year, according to calculations by the committee.
Citi analysts said last week that even based on a lesser version of the loss reinstatement clause, the new bonds had “significant downside protection in the event of any default . . . [we] would expect a high take-up among warrant holders”.
Prices for the warrants have rallied to a one-cent premium over their dollar face value since Ukraine first announced the restructuring offer.
Over the same period, Ukraine’s 2029 bond has fallen from 72 to 68 cents on the dollar, as one of the first debts that Ukraine would have to repay after last year’s restructuring.
Ukraine is rushing to complete a restructuring by the end of the year, in time for its new budget, and as it needs to reassure the IMF and European financial backers it is not paying too much out to private investors.
The warrants provide for payouts if Ukraine’s economy grows more than 3 per cent a year, increasing them if growth exceeds 4 per cent. Ukraine defaulted on a payment that was due this year for 2023 growth as it negotiated with investors.
The payouts are no longer subject to a cap of 1 per cent of GDP, which increased the urgency for Ukraine to strike a deal.
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