Ukraine announces successful restructuring of GDP-linked warrants, saving government billions of dollars in post-war period

Ukraine has announced that holders of outstanding GDP-linked Securities (“Warrants”), totalling USD 2.6 billion, have participated in the exchange offer and voted in favour of the proposed extraordinary resolution resulting in the full exchange of the Warrants into conventional debt securities of Ukraine. This landmark achievement marks a substantial step in ensuring Ukraine’s debt sustainability and fiscal predictability by removing the Warrants issued in 2015 as part of a prior sovereign debt restructuring caused by Russia’s annexation of Crimea and invasion of Donbas.

This transaction contributes to ongoing efforts to preserve macroeconomic stability, ensures debt sustainability by avoiding substantial cash outflows in the reconstruction period, and conserves resources vital for funding the country's defence against Russia’s full-scale invasion.

Following a comprehensive negotiation process with Warrant holders, 99,06% of the holders have endorsed the restructuring deal, surpassing the required 75% threshold for completion of the transaction. This means that Ukraine will convert nearly the entire outstanding notional amount of Warrants into a new class of C notes due 2032 in the amount of USD 3.497 billion (with a small amount of Warrants converted into further B notes due 2030 and 2034 in the amount of c. USD 34 million) as outlined in the invitation. As part of the transaction, Ukraine has also cancelled USD 604 million in notional amount of Warrants held by Ukraine, thereby completely retiring the GDP-linked instrument.

This restructuring will reduce significant risks previously posed by the Warrants to Ukraine’s public finances. According to the Ministry of Finance modelling, aggregate payouts under the Warrants between 2025 and 2041 could have amounted to between USD 6 billion and USD 20 billion, depending on the country’s growth rate in the reconstruction period. Such extreme volatility is due to the nature of the instrument, with payouts being uncapped after 2025 and linked to year-on-year real GDP growth - without protection against the future risk of economic downturns followed by sharp growth rebounds resulting in payouts unjustified by economic realities. Payments under the Warrants are triggered if year-on-year real GDP growth exceeds 3% and nominal GDP is above USD 125.4 billion and are calculated as 15% of Ukraine’s year-on-year growth above 3% and below 4%, and 40% of growth above 4%.

Ukraine’s GDP has contracted by nearly 30% in 2022 because of Russia’s full-scale invasion. In 2023, the economy recovered by 5.3%, which triggered a USD 665 million claim under the Warrants despite the absence of real improvement in the country’s economic situation. Such claim has been fully extinguished by the current transaction.

Sergii Marchenko, the Minister of Finance of Ukraine, commented on the successful operation:

“This restructuring will allow Ukraine to save billions of dollars of potential payouts during post-war recovery. Converting the warrants into standard fixed-income bonds with aggregation brings predictability and reduces long-term volatility for public finances. We are retiring a toxic instrument that has become a serious fiscal risk for Ukraine and could have undermined our recovery and reconstruction.

Finalising the warrants restructuring deal is a crucial step on Ukraine’s path to ensuring long-term debt sustainability and our swifter re-entry to international markets once the security situation improves.

This agreement will help Ukraine achieve the debt targets under the IMF-supported programme and is in line with the expectations of our bilateral partners, the Group of Creditors of Ukraine.

I would like to thank all our partners for their support as we worked to find a solution to our debt burden.”

Yuriy Butsa, Government Commissioner for Public Debt Management, emphasized:

“By restructuring GDP-linked warrants, we are addressing one of the key risks identified in our public debt management strategy, making Ukraine’s public debt profile more predictable and sustainable even in adverse scenarios. As a result of this transaction, Ukraine is better positioned to navigate the challenges of financing post-war recovery. We remain firmly committed to keeping public debt on a sustainable path, which is vital for safeguarding financial stability and building a stronger, more prosperous economic future for our country.”

With the positive outcome of the invitation launched on December 1st, the restructuring process will now proceed to the settlement phase in the coming days and in all events before the end of the year.