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Ukraine eyes debt deal before deadline, seeks to add GDP warrants, sources say

2024-07-02 11:38:24

By Libby George and Karin Strohecker

LONDON (Reuters) -Ukraine told investors it still expects to succeed in its unprecedented aim of restructuring debt in the middle of a war before payment moratoriums expire by Aug. 1, according to two sources who joined a call with the Finance Ministry on Monday.

The war-torn country also intends to include GDP warrants as part of its effort to restructure some $20 billion of international bonds, said the sources.

Monday's call marks part of Ukraine's fresh push to engage with investors after formal restructuring talks last month ended without an agreement.

Statements released last week showed there was a wide gap between the 20% haircut bondholders are prepared to give and a proposal from Ukraine that would have translated into a haircut of up to 60%.

"They believe that an agreement can be reached soon," one of the sources said, speaking on condition of anonymity. Yuriy Butsa, head of Ukraine's debt management office, who is leading the country's engagement with creditors, spoke on the call and was joined by representatives from the government's advisers and the IMF mission chief to Ukraine, Gavin Gray, the sources said.

On the creditor side, members of the Ad Hoc Creditor Committee joined, along with investors who were not part of the group.

Ukraine has $19.7 billion outstanding on its international bonds and owes $2.6 billion on GDP warrants - a fixed-income instrument with payouts that are linked to the strength of economic output growth. The warrants were created as a sweetener to creditors during Ukraine's 2015 debt restructuring in the wake of Russia's annexation of Crimea.

The statement released last week, which details the government's restructuring proposal to bondholders, only mentioned the GDP warrants in the context of removing a cross default clause between the bonds and the warrants. Some investors had interpreted this as a sign that Kyiv did not envisage restructuring both types of debt at the same time, but dealing with the bonds first.

However, the message was now that something had to be done with the warrants as well, the sources said, as the payments due on the warrants were included in the IMF's crucial debt sustainability analysis (DSA), and could also siphon money away from the largely token coupon payments that the government proposed to make to bondholders under the restructuring.

"Ukraine has proposed that the new bonds will have no events of default related to or referencing the GDP warrants, while our proposal recognises that GDP warrants payments included in the DSA are taking up substantial headroom," the ministry told Reuters via email.

The IMF did not respond to a request for comment on the substance of the call.

Ukraine also intends to add a most-favoured creditor clauses in the restructured bond instruments to ensure that those holding the state-owned enterprises' debt would not get a better deal when that debt at is restructured at a later stage.

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