Ukraine's talks with GDP-linked debt holders break down for second time

By Marc Jones

Talks between Ukraine and holders of its GDP warrants have broken down for a second time in six months, the Ukrainian government said, adding another delay to its hopes of restructuring the $3.2 billion of bond-like instruments.

Having failed with an original proposal back in April, this time Kyiv offered warrant holders a simpler plan to convert their warrants into a new traditional-style bond, sweetened with an additional cash payment.

"The parties have jointly decided to terminate the restricted discussions without reaching final agreement on the terms of a potential restructuring of the warrants," the finance ministry said in a statement issued on Thursday.

The government intends to "continue engagement" with the debtholders, it said, adding that it would consider "all available options" to restructure the instruments, which is a stipulation of its IMF programme.

In a statement on Friday , the group of warrant holders which was negotiating with the government said its main request in the talks was for a "claim reinstatement mechanism" - effectively an insurance policy that would protect the proposed new bonds against any future debt restructuring.

Ukraine threw in the GDP warrants (XS1303929894=TE) - fixed income securities which only pay out if Ukraine's economy grows strongly - to help clinch its 2015 debt restructuring following Russia's annexation of Crimea.

But their complex structure meant they were not part of last year's broader $20 billion restructuring that became necessary following Moscow's full-scale invasion in early 2022.

With still no sign of the war ending and the country now hoping to secure a four-year multi-billion-dollar extension of its IMF plan by the start of next year, onlookers have asked whether the Fund might recommend a further debt write-down.

The warrants themselves meanwhile climbed by just over 3 cents on Friday to 87.71 cents on the dollar - well above the 41-68 cents levels of the already restructured sovereign bonds. (XS2895056955=TE), (XS2895055981=TE)

Ukrainian Finance Minister Serhii Marchenko on Thursday called the lack of progress "regrettable".

"Our objective remains clear," he added. "To secure a solution that supports Ukraine’s macroeconomic stability and recovery, while maintaining our commitments under the IMF programme."