Ukraine Announces Exchange Offer and Consent Solicitation for Existing GDP-Linked Securities

Today, Ukraine announced that, following the third round of restricted discussions held between November 25 and November 30 with the Ad Hoc Committee of holders of Ukraine’s GDP-linked Securities (“Warrants”), it is launching an exchange offer and consent solicitation for its outstanding Warrants (“Invitation”).

The latest round of discussions allowed Ukraine to make meaningful progress in bridging commercial and structural gaps with the Ad Hoc Committee, and at the same time make substantial progress in defining the legal and technical elements of a transaction that can be supported by the Ad Hoc Committee. Ukraine has agreed to continue engaging in good faith with the Ad Hoc Committee and its legal and financial advisors over the coming days to find mutually acceptable solutions to  remaining legal and technical issues relating to the transaction.

In this context, Ukraine has publicly announced the Invitation and extended it to all Warrant holders. Ukraine is confident that the terms presented today contain the necessary elements to achieve a successful restructuring before year-end.

“Today we enter the decisive stage of our debt management efforts: warrant holders are now invited to vote on the Government’s proposal to exchange Ukraine’s GDP-linked Warrants for new fixed income debt securities of Ukraine. This follows extensive consultations with the investor community and repeated rounds of restricted discussions aimed at designing a viable solution acceptable to all our partners. The proposal is based on feedback we received from market participants and takes into account comments on economics and structure provided by the Ad Hoc Committee.  

Once completed, this transaction will help eliminate significant fiscal risks associated with the warrants and restore debt sustainability in line with the IMF Debt Sustainability Analysis programme targets.” — commented Yuriy Butsa, Government Commissioner for Public Debt Management.

Key Elements of Ukraine’s Offer

The key elements of the Invitation are summarised in the launch announcement published earlier today by Ukraine on Euronext Dublin.

Under the proposal, eligible holders of Warrants have the opportunity, in accordance with the Invitation, to exchange their existing Warrants for a combination of new Eurobonds of Ukraine (“C Bonds”) and cash, as described in more detail in the launch announcement.

Statement by Sergii Marchenko, Minister of Finance of Ukraine

“Russia’s full-scale invasion has delivered one of the deepest economic shocks Europe has seen in decades. Our economy contracted nearly 30% in 2022, and today repeated attacks on our energy and railway infrastructure continue to constrain growth and increase financing needs.

In this environment, the GDP-linked warrants — created for a different era — have become a source of substantial fiscal risk due to extreme volatility of the war time. Without a restructuring, Ukraine would risk paying billions of dollars resulting from a post-war economic rebound, diverting vital funds away from defence, reconstruction and essential public services.

We value the constructive engagement with our creditors, in particular the Ad Hoc Committee of warrant holders, and strong support from our bilateral and multilateral partners, reinforcing our shared commitment to Ukraine’s stability and recovery. We are confident that we will secure support for a restructuring that safeguards our country’s fiscal stability and post-war reconstruction."

Next Steps

All warrant holders, including Ad Hoc Committee members, are now invited to participate in the transaction. Early-bird voting runs until 12 December, the exchange period remains open until 17 December, with settlement expected on 29 December. Ukraine will now focus on securing broad investor support to deliver the terms of this transaction.

Background

• The Warrants were issued in 2015 as part of a debt restructuring resulting from the russian invasion of Donbass and annexation of Crimea.
• Payments under the Warrants are triggered if year-on year real GDP growth exceeds 3% and nominal GDP is above USD 125.4 billion.
• Payouts, in USD, are calculated as 15% of Ukraine’s year on year growth above 3% and below 4%, and 40% of growth above 4%.
• Ukraine’s 5.2% real GDP growth in 2023 generated a USD 643 million claim under the Warrants, which amount is currently unpaid due to moratorium.  This claim will be discharged upon completion of the Warrant restructuring described in the Invitation.
• No payout caps apply beyond the 2025 test date, creating long-term volatility and fiscal risks for Ukraine.
• Converting the Warrants into fixed-income C Bonds brings predictability and reduces long-term volatility.