Ukraine Fails to Reach Agreement on GDP-Linked Debt Restructuring, Talks Ongoing

On April 24, Ukraine’s government announced it has not reached a deal with holders of its GDP-linked warrants to restructure the $3.2 billion debt instruments, though both sides remain open to further negotiations.

The Gaze reports on this with reference to Reuters.

GDP-linked warrants are financial instruments issued in 2015 after Russia’s annexation of Crimea, intended to compensate investors for agreeing to a previous debt restructuring. They promise payments if Ukraine’s economy grows beyond certain thresholds. After the devastating economic impact of Russia’s full-scale invasion in 2022, Kyiv argues that the terms of these warrants are now outdated and burdensome.

Kyiv had proposed two main options to creditors: either convert the warrants into traditional bonds or suspend payments through 2028 in exchange for additional bonds and an extension of a call option until May 2029, which would allow the government to buy back the securities. However, warrant holders rejected the proposal, claiming it lacked viability and was unlikely to gain approval.

In turn, creditors offered a counterproposal involving a payment of $406 million in cash and $209 million in new bonds – an offer Ukraine declined. The government cited the proposal’s incompatibility with its financial realities and IMF requirements.

“These instruments were designed for an economic landscape that no longer exists,” Finance Minister Sergii Marchenko said, noting that the 5.3% GDP growth recorded in 2023 was largely a recovery from the steep contraction triggered by Russia’s full-scale invasion in 2022.

With future payments potentially surpassing $6.6 billion based on current IMF forecasts, Ukraine is under pressure to find a resolution that aligns with its debt sustainability targets under the $15.6 billion IMF program. Kyiv has imposed a moratorium on warrant payments starting May 31, 2025, pending a deal.

While 30% of creditors argue that wholesale restructuring is unnecessary, Kyiv insists that reform is essential given its reliance on foreign aid and the ongoing impact of the war. Both sides have expressed a willingness to continue talks, aiming to avoid default and maintain access to international markets.