Ukraine to Skip $665 Million Payment on GDP Warrants Without Sovereign Default

Ukraine will skip a $665 million scheduled payment on the securities linked to economic growth until it agrees new terms with creditors. 

The GDP warrants – securities from pre-wartime following debt restructuring in 2015 – were designed to honor Ukraine’s obligation to pay creditors for the country’s economic growth. 

Ukraine had an obligation to pay more than half a billion dollars in regular payments on June 2 this year but will halt the payment following a moratorium imposed by Ukraine’s government on Aug. 27, 2024. 

Ukraine will not pay until it negotiates the new terms with investors, according to a May 30 press release from Ukraine’s Ministry of Finance on the Irish Stock Exchange.

According to the Ministry of Finance, it is now negotiating new terms with investors.

“Ukraine reminded the holders of the GDP-linked Securities that, in accordance with the Government’s decision as of August 27, 2024, a moratorium on payments under these instruments is in effect and will remain in place until the restructuring process is completed,” the Ministry of Finance of Ukraine wrote in a separate press release on its website. 

The first round of talks about GDP warrants was unsuccessful. Ukraine offered creditors two options, one of which included a full exchange for sovereign bonds. GDP warrants holders “were willing to restructure only the May payment, demanding more than $400 million in cash and the conversion of more than $200 million into new bonds.

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Ukraine wants to restructure the GDP warrants with an estimated total of $3.3 billion of debt, but wants to agree on terms that comply with debt targets set forth in Ukraine’s IMF program and the principle of comparability of treatment with Ukraine’s bilateral partners, the press release says. 

Last year, Ukraine successfully negotiated new terms of $20 billion debt under Eurobonds, saving $11.4 billion over the next three years by a combination of lower coupons and maturity extensions.

Another part of this agreement involved removing the cross-default clause. This means that not paying for the GDP warrants debt will not cause Ukraine to be in a default position as a country. 

“This means that adherence to the moratorium on payments under state derivatives does not trigger a cross-default on sovereign Eurobond obligations and does not pose a threat to the country’s financial stability,” the Ministry of Finance wrote. 

Ukraine’s chief debt negotiator Yuriy Butsa told investors in London this week that Kyiv is in no hurry to restructure its GDP-linked debt, Reuters reported. 

Ukraine wants to get the right deal rather than rush for the deadline, the media outlet wrote.

[UPDATED: June 4, 12:17 pm , Kyiv time. “Sovereign” added in the headline.]