Holders of over 25% of GDP warrants in consultations with other holders on Ukraine's restructuring

MOSCOW. July 31 (Interfax) - A group of holders of over 25% of Ukraine's publicly traded GDP warrants has hired Cleary Gottlieb Steen & Hamilton LLP (CGSH) to seek other holders and their views on Ukraine's intention to restructure them again.

"The group takes note of Ukraine's announcement of its intention to begin discussing warrant restructuring, despite the fact that the warrants were restructured in 2022," Ukrainian media reported citing a CGSH statement.

The holders of the GDP warrants are invited to contact CGSH to express their opinion on Ukraine's statement and receive more details, it said.

Last week, Bloomberg reported citing sources familiar with the situation that a group of hedge funds that invest in Ukraine is arranging talks with the government on restructuring GDP warrants issued during the 2015 restructuring to replace the 20% Eurobond debt. The funds, including Aurelius Capital Management LP and VR Capital Group, are part of a group of lenders advised by Cleary Gottlieb Steen & Hamilton LLP, the report said.

On July 22, the Ukrainian Finance Ministry said that it reached an agreement on restructuring $20 billion in Eurobonds with a group of holders of around 25% of those securities, indicating that the GDP warrants were not part of the deal. At the same time, the Finance Ministry is "committed to ensuring fair and equitable treatment of the warrant holders in any prospective future proposal for liability management or another application." The ministry intends to make a payment of up to $250 million on the warrants in early August, as agreed in 2022, which is a fee for an agreement to change terms and for a deferred payment for the high GDP growth rate in 2021.

According to the Frankfurt Stock Exchange, the GDP warrants maturing in 2041 were traded on Wednesday at a purchase price of 59.25% of the face value, and a sale price of 66.25%, rising 14 p.p. over the past week to an all-time high since the start of the crisis in 2022.

It was reported earlier that Ukraine agreed with the holders of the GDP warrants to revise the terms for them in August 2022. In particular, it was agreed to defer the payments due in 2023 for 14 months, limit the possible amount of payments in 2025 for 2023 to 0.5% of GDP, extend the term of circulation of these instruments for a year, until 2039, and at the same time grant Ukraine the right to fully or partially redeem them in 2024-2027. They agreed that the repayment of the GDP warrants due on May 31, 2023, estimated at approximately $100 million, would be deferred until August 1, 2024, and would bear interest at a rate of 7.75% per annum.

Under the original terms of the GDP warrants, which were issued as part of the restructuring of Ukraine's public debt in 2015 to replace around $3.239 billion in Eurobonds, if the annual GDP growth is lower than 3% or if the real GDP is less than $125.4 billion, there will be no payments on the securities. If the real GDP growth is 3%-4%, the securities payout will total 15% of the excess of GDP over 3%, and if it is higher than 4%, another plus 40% of the excess of GDP over 4%. However, from 2021 through 2025, payments were initially capped at 1% of GDP. A number of Ukrainian politicians and experts have criticized the lack of any caps on payments beyond 2025 in case of rapid GDP growth. The value of GDP warrants reached 110% of the notional amount and even more.

Ukraine's GDP rose 5.3% in 2023, which means the need for another payment on them in 2025.