Ukraine has entered the final stage of restructuring its $3.2 billion GDP-linked warrants after presenting what officials describe as the government’s final proposal to investors following the third round of closed negotiations with the ad hoc committee of major holders.
The Finance Ministry published the final offer to GDP warrant holders on Dec. 1, saying the structure reflects substantial progress achieved with the committee between Nov. 25 and Nov. 30, and contains all elements needed to complete the restructuring by year-end.
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However, a group of investors including Aurelius Capital Management LP and VR Capital Group is pressing for stronger protections, including clauses that would shield the new securities from any future restructuring.
The group said consensus has not been reached and urged warrant holders to wait for further guidance before voting.
Ukraine’s debt management chief Yuriy Butsa met with some investors at a conference in London to discuss the proposals, Bloomberg reported on Dec. 4.
The ministry told Bloomberg it “remains confident” the offer is the best available option to meet International Monetary Fund (IMF) debt-sustainability targets and remove significant fiscal risks linked to the instruments issued in 2015.
Talks allowed the government to make “substantial progress” in narrowing structural, economic, legal and technical differences, the Finance Ministry wrote in its official press release.
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A successful deal would remove the last debt instrument burdening Ukraine’s wartime finances. Nearly 70 percent of public spending is now directed to defense as Russia’s invasion nears its fourth year and drone activity is growing across Europe.
Final offer includes bond exchange and mandatory mechanism
Under the proposal, eligible investors may exchange each $1,000 of warrants for $1,340 of new C-series bonds and a cash component, which became a compromise between previous $1,260 in new C Bonds from Ukraine’s proposal and $1,400 in new C Bonds from the investors during the previous negotiation round.
A mandatory exchange mechanism is triggered if 75 percent of holders approve the exchange. A supermajority vote is required to force all remaining warrant holders into a Mandatory Exchange.
But if fewer investors – 50% – participate in accepting the exchange offer, the exchange of GDP warrants into bonds will be only for those participating in the vote. Then the exchange offer is a voluntary one.
Early voting runs until Dec. 12, and the exchange remains open until Dec. 17, with settlement expected on Dec. 29.
Hedge funds seek additional protections
The discussions now move to investors, the so-called Ad Hoc Committee, some of whom have been pushing for stronger protections.
Bloomberg reported that funds including Aurelius Capital Management LP and VR Capital Group are seeking more advantageous terms, including loss-reinstatement provisions safeguarding them against any future restructuring.
During the previous round of discussions, they have already presented a “loss reinstatement” or “claim reinstatement” mechanism – allowing the claims to multiply if Ukraine defaults again in the future. However, back then, Ukraine’s Ministry of Finance did not reach a compromise during the talks.
The investors said consensus had not yet been reached and urged holders to await further communication before acting on the offer, Bloomberg wrote.
The possibility of Ukraine agreeing to the ad hoc committee’s terms has caused concern among some existing bondholders, Bloomberg reported, who fear that enhancing the new instruments could weaken their relative position. That said, neither Bloomberg nor Ukraine’s Ministry of Finance have reported additional updates at the time of publishing.
Ministry says restructuring is critical for stability
In an official statement, the Finance Ministry said completing the transaction will “remove significant fiscal risks associated with the warrants and restore debt sustainability,” noting that wartime volatility has turned the instruments into a heavy fiscal burden.
The tone of the latest press release of the ministry became much more positive compared to the second, unsuccessful round of talks. Kyiv Post previously reported that the creditors came under fire for lack of progress in negotiations, although the government has promised to try again.
On Dec. 1, following the introduction of Ukraine’s exchange offer, the press release quoted Finance Minister Serhiy Marchenko, writing that the warrants were designed in a different economic era.
The drive of the post-war reconstruction could cause a potential spike in Ukraine’s real GDP, though it would be rooted in stabilization of the war-battered economy rather than impressive economic growth.
Since Ukraine’s payments by GDP warrants are tied to the economic growth figures, this could generate multi-billion-dollar payouts after the war, diverting essential funds from defense, reconstruction and social spending if left unrestructured.
Ukraine said it values the engagement of the ad hoc group and expects to secure broad investor support to finalize the restructuring this month.
Why Ukraine seeks to restructure the warrants
Ukraine has already suspended a $665 million payment on the GDP warrants that was due on June 2, 2025, invoking a moratorium that lasts until the completion of restructuring.
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.
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.
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 latest failed talks follow an earlier round of negotiations in April, and between Oct. 16 and Nov. 5.
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 [the national railway] bonds, Naftogaz bonds and sovereign GDP warrants remain the last assets that should be renegotiated with the creditors.
