Ukraine and GDP Warrant Holders Terminate Negotiations Without Agreement

Ukraine’s government has terminated negotiations on the securities linked to economic growth, criticising their owners for “limited engagement” and failing to reach a final agreement on the new terms. 

Ukraine wants to restructure GDP warrants with an estimated total of $3.3 billion of debt. 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.

Their terms should be renegotiated as Ukraine enters the fourth year of Russia’s full-scale invasion with a limited capacity to pay extra cash for non-defense spending. 

According to the government’s statement published on Nov. 6, Ukraine held talks with an Ad Hoc Committee of institutional holders of the warrants between Oct. 16 and Nov. 5.

The Ministry of Finance of Ukraine said that Ukraine’s proposal could not be accepted by the Ad Hoc Committee, while the counterproposals from the committee were also rejected by the government. Both sides decided to end the discussions without reaching an agreement.

In a press release from Ukraine’s Ministry of Finance, the creditors came under fire for lack of progress in negotiations, although the government has promised to try again. 

“Very limited engagement on economics was achieved with Warrant holders between the start and the end of the restricted discussions period. Because of the lack of meaningful progress on economics, Ukraine indicated that it could not accept the Ad Hoc Committee’s final proposal and declined to make any further proposal to the Ad Hoc Committee before the end of the Restricted Period,” Ukraine’s Ministry of Finance wrote. 

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Ukraine’s proposal vs. creditors’ counterproposals

Ukraine, represented by Rothschild & Co and White & Case, proposed to exchange all existing GDP warrants into a mix of cash and new sovereign C bonds. 

The plan aimed to provide limited compensation for the missed June 2025 payment due for the 2023 reference year, while consolidating future obligations into a single bond series under English law.

Ukraine’s government and the GDP warrant holders exchanged their proposals twice, with few changes to the design. The second proposal, however, included a whole new part – the “claim reinstatement” clause – allowing the face value of the bonds to increase if Ukraine defaults or restructures again.

Ukraine’s proposal 

For every $1,000 of GDP warrants, the government offered holders the following:

• $50 in cash – a one-off payment to everyone who takes part in the exchange.

• $10 in a consent fee – an additional cash payment for those who vote in favor of the deal (non-consenting holders would not receive this part)

• $1,260 in new “C Bonds” – Ukraine proposed to replace each $1,000 of warrants with $1,260 in new sovereign bonds 

The new bonds would mature in 2030, 2031, 2032 and 2033, according to the government’s first proposal, and in 2030, 2031 and 2032, as per its second proposal. 

The new bonds would carry step-up coupons: 2.5% in 2026–2027, 4% in 2028–2029, and 5.5% (6% in the second proposal) in 2030–2033. They would be paid on a semi-annual basis, on Jan. 30 and July 30. 

The offer also included a small compensation for the missed 2025 payment under the 2023 reference year but ruled out any further back payments.

Creditors’ counterproposal 

The Ad Hoc Committee – represented by PJT Partners and Cleary Gottlieb Steen & Hamilton – rejected this offer and countered with more generous terms. For every $1,000 of GDP warrants, they suggested: 

• $12.5 in cash – paid to all holders who agree to exchange

• $25 in consent fee – available only to investors who approve the deal, with any unused portion redistributed among those who do

• $1,400 in new C Bonds – creditors asked to receive $1,400 of new bonds for every $1,000 of warrants

The proposed maturity would be earlier, between 2029 and 2031, in both proposals. The rate differed between the first and the second round, however. 

At first, GDP warrant holders proposed coupons starting at 6% for the bonds maturing in 2026 and rising to 7.75% from the second half for the bonds maturing in 2027 and in 2031. 

The coupon rates in the second proposal start at 5% for bonds maturing in 2026 and in the first half of 2027, and at 7.75% for the bonds maturing in the second half of 2027 and 2031.  

The committee also demanded structural protections, such as a “loss reinstatement” or “claim reinstatement” mechanism – allowing the claims to multiply if Ukraine defaults again in the future – and tighter limits on future bond issuances. 

The government rejected these provisions as incompatible with its debt-sustainability objectives and IMF conditions.

Why Ukraine seeks to restructure the warrants

Ukraine suspended payments under the GDP warrants in August 2024, invoking a moratorium that lasts until the completion of restructuring. The decision was part of a broader effort to restore debt sustainability under the IMF’s Extended Fund Facility and to ensure “appropriate burden sharing” across all commercial creditors, in line with commitments made during the Eurobond restructuring earlier that year.

Under the IMF program, Ukraine must maintain a sustainable debt path, assuming that it continues to rely on large-scale foreign assistance through 2027. 

Without restructuring, payments under the warrants could significantly increase once GDP growth exceeds 3% annually. 

How the GDP warrants were created

Ukraine’s GDP-linked warrants were first issued in 2015 after the country’s post-crisis debt restructuring led by then-Finance Minister Natalie Jaresko. The instrument was designed as a “value recovery” mechanism, giving creditors an upside if Ukraine’s economy outperformed baseline forecasts post 2020.

The warrants do not have a fixed maturity date. Instead, they trigger annual payments if Ukraine’s GDP growth surpasses 3%, capped at 1% of GDP in any year. Since issuance, the instruments have traded on international markets and are held mainly by institutional investors.

Payments were made in 2021 and 2023, following stronger-than-expected economic performance before and after the COVID-19 pandemic. 

However, after Russia’s full-scale invasion in 2022, Ukraine’s economy contracted by almost 30%, and the instrument became a growing fiscal risk once recovery resumed.

The approach by Ukraine’s Ministry of Finance is more direct. 

“The GDP warrants were designed for a world that no longer exists,” Minister of Finance of Ukraine Sergii Marchenko is quoted as saying in the government press release.

The government argues that restructuring is necessary to prevent future windfall obligations tied to GDP growth, which could otherwise undermine post-war fiscal stability and debt-sustainability targets set by the IMF.

Although negotiations have ended without agreement, Ukraine has said it remains ready to continue dialogue with the holders and “consider all available options” for restructuring, ensuring fairness across all creditor classes and compliance with official-sector terms.

The latest failed talks follow an earlier round of negotiations in April, when Ukraine also could not reach an agreement with GDP warrant holders, including hedge funds such as Aurelius Capital Management and VR Capital Group. 

At the time, investors rejected Kyiv’s offer to exchange the warrants for new bonds, insisting on a limited restructuring that covered only the upcoming payment.

Ukraine has already suspended a $665 million payment on GDP warrants that was due on June 2, 2025, under the moratorium approved in August 2024. 

The Ministry of Finance said the halt does not constitute a sovereign default because the moratorium and the earlier Eurobond deal removed the cross-default clause that would otherwise link these instruments to Ukraine’s main debt obligations.

Unlike the Eurobond restructuring – reached after just two rounds of talks – the GDP warrant negotiations have yet to produce any breakthrough.

Ukraine succeeded in restructuring $20 billion of Eurobond debt last year, which saved about $11.4 billion over three years through lower coupons and longer maturities. The Eurobond deal removed the cross-default clause, allowing Ukraine to halt payments on the GDP warrants without being declared in default.

Ukrzaliznytsya (Ukraine’s national railway) bonds and sovereign GDP warrants remain the last assets that should be renegotiated with creditors.