FT: Ukraine on the brink of default – Kyiv failed to reach deal with investors to restructure $2.6bn of debt

Pic.: Reuters

Ukraine said that it had failed to reach a deal with holders of $2.6bn of its debt, in a blow to its hopes of securing a restructuring ahead of a payment deadline next month, ‘The Financial Times’ reports.

The country’s finance ministry said it would “consider all available options” on a restructuring and continue negotiations after the failure of opening talks in Washington this week with a group of holders of its so-called GDP warrants.

Last month the IMF said that “if left untreated”, the warrants “constitute an important risk” for debt sustainability even after a $15.5bn bailout by the fund and a restructuring of more than $20bn of bonds last year.

The warrants were left out of last year’s restructuring, given their complexity, but Kyiv needs to strike a deal on them to avoid potentially billions of dollars flowing out of its finances in the years ahead.Payouts on the warrants are tied to Ukraine’s annual economic growth, which could rebound strongly in the event of a ceasefire with Russia.Kyiv will have to decide whether to default on a payment of close to $600mn that is due at the end of May, linked to the economy’s performance in 2023, if it is unable to reach a deal on a restructuring before then.

Ukraine’s proposal “has no prospect of approval by a requisite majority of holders of the warrants nor does it form the basis for a viable point of engagement with warrant holders”, the committee said.

The committee of warrant holders said on Thursday that “a further wholesale restructuring of the warrants is neither appropriate nor necessary”, in part because of this buyback option, which would allow Ukraine to pay $2.6bn to retire the debt, rather than pay out an expected $6.6bn in future.

Ukraine’s GDP grew by more than 5 per cent in 2023. Payments on the warrants are currently capped at 0.5 per cent of Ukraine’s overall GDP. This cap will eventually expire, giving Kyiv further incentive to restructure payments.

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