The Ukrainian government has resumed talks with holders of Ukrainian GDP warrants, financial instruments that provide for payments depending on the country’s economic growth rate. The talks are about a possible restructuring of these securities, after the parties failed to reach an agreement on the terms of a debt review worth $3.2 billion in previous talks. This was reported by Bloomberg.
A group of investors led by several hedge funds signed non-disclosure agreements this week, allowing the so-called limited negotiations to begin. The details of the participants in the process are not disclosed, as the negotiations are confidential.
The term “restricted” means that the parties may exchange non-public information, and also temporarily restrict trading operations, as the information being discussed may affect the market value of the securities.
Among the investors holding the warrants are hedge funds Aurelius Capital Management LP and VR Capital Group. They are advised by the law firm Cleary Gottlieb Steen & Hamilton LLP and investment bank PJT Partners.
On Tuesday, the value of the warrants on the market exceeded 91 cents on the dollar, which increased their annual growth to about 20%.
This is not the first time that Ukraine has tried to reach an agreement with hedge funds on the restructuring of these debt instruments.
From April 15 to 23, the government held a meeting with members of the Special Committee – institutional investors who own about 30% of GDP warrants. Both sides presented their restructuring options, but were unable to agree on any of them.
From October 16 to November 5, Ukrainian representatives again held negotiations with the Special Committee, but this time the parties exchanged proposals without result.
During previous rounds of negotiations, Ukraine offered the holders to exchange the warrants for partial cash compensation and a new package of sovereign bonds (“Type C bonds”). This decision was to be assessed and approved by the IMF and the Paris Club of creditors, as it concerned Ukraine’s fulfillment of its obligations to restore debt sustainability and equal treatment of creditors.
According to the Ukrainian proposal, investors were to receive $60 in compensation for each warrant with a face value of $1,000. However, no agreement was reached. Ukrainian Finance Minister Serhiy Marchenko explained that the proposal included the exchange of warrants for new C-series Eurobonds with an exchange ratio of 1.26, a gradual coupon in the range of 2.5–6%, and a payment of 6 cents for each dollar of face value — as a tool to stimulate investor participation.
