Stay informed with free updates<\/p>\n
Simply sign up to the War in Ukraine myFT Digest — delivered directly to your inbox.<\/p>\n
Ukraine has launched a restructuring of $2.6bn of growth-linked debts that are seen as key to financing its war effort and which had threatened to drain billions of dollars from Kyiv\u2019s postwar finances.<\/p>\n
The country\u2019s finance ministry on Monday unveiled<\/a> an offer for investors to\u00a0swap so-called GDP warrants into new bonds<\/a> by the end of the year in return for a cash sweetener of up to $180mn and gradually rising interest payments, following months of talks.<\/p>\n Ukraine and a committee representing some of holders of the warrants both said on Monday that there had been \u201cmeaningful progress\u201d on key terms of a restructuring in recent talks, although there was not yet full agreement on all the details.<\/p>\n The offer underlines how Ukraine is trying to prepare its finances for a potential peace deal with Russia as much as for the need to contain its debts if the war drags on.<\/p>\n Ukraine\u2019s government needs to secure a new $8bn IMF bailout and new financial support from European backers by assuring them it will not spend too much of their money on payments to private investors.<\/p>\n \u201cWe\u00a0are confident that we will\u00a0secure\u00a0support for\u00a0a restructuring\u00a0that\u00a0safeguards\u00a0our\u00a0country\u2019s\u00a0fiscal stability\u00a0and postwar reconstruction,\u201d said Sergii Marchenko, Ukraine\u2019s finance minister.<\/p>\n The committee said it \u201chas indicated its willingness to participate in the exchange offer\u201d if terms can be finalised.<\/p>\n The warrants were left out of Ukraine\u2019s restructuring of more than $20bn of dollar bonds last year, given their complex payouts linked to economic growth, which would rise massively in a reconstruction-led economic boom.<\/p>\n \u201cWithout\u00a0a\u00a0restructuring,\u00a0Ukraine\u00a0would\u00a0risk paying billions of dollars resulting from\u00a0a\u00a0postwar economic\u00a0rebound,\u00a0diverting vital funds away from defence, reconstruction and essential public services,\u201d Marchenko said.<\/p>\n Kyiv defaulted<\/a> on a payment of more than $600mn that was due on the warrants earlier this year. Last month the country broke off talks<\/a> with warrant investors over their demands for more insurance against the potential for another restructuring if the war with Russia continues. However, negotiations restarted last week.<\/p>\n If investors do not accept the restructuring of the warrants, then Kyiv either faces billions of dollars in payouts in a postwar recovery, or the alternative of buying the warrants back at par, at a time when it is seeking to spend similar sums on US weaponry and shoring up its defences.<\/p>\n Ukraine is offering up to $180mn in cash as incentives for investors to take the deal and as partial compensation for this year\u2019s missed payment. The cash level will depend on how many investors accept Ukraine\u2019s offer and how quickly.<\/p>\n The country will then pay gradually increasing interest rates on the new debt before it matures, starting at 4 per cent and rising to 7.25 per cent.<\/p>\n In return, Ukraine will no longer be on the hook for billions of dollars in annual payments if reconstruction after Russia\u2019s invasion leads to economic growth well above a trigger threshold of more than 3 per cent a year.<\/p>\n Based on previous IMF economic projections, these payments could have totalled over $6bn in the years ahead.<\/p>\n Under the warrant terms, Ukraine had to pay out 15 per cent of growth over the 3 per cent threshold, and then 40 per cent of any growth over 4 per cent. A cap limiting these payments to 1 per cent of GDP expired this year, increasing the urgency for Kyiv to restructure the warrants.<\/p>\n The warrants were originally issued in 2015 as an incentive for Ukraine\u2019s bondholders to agree to take losses in a restructuring after Russia annexed Crimea in 2014.<\/p>\n","protected":false},"excerpt":{"rendered":"Stay informed with free updates Simply sign up to the War in Ukraine myFT Digest — delivered directly…\n","protected":false},"author":2,"featured_media":605816,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7654],"tags":[2000,299,657],"class_list":{"0":"post-605815","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-ukraine","8":"tag-eu","9":"tag-europe","10":"tag-ukraine"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/115645832587388916","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/605815","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=605815"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/605815\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/605816"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=605815"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=605815"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=605815"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}