FT: Ukraine risks default as debt talks collapse

Ukraine’s efforts to restructure a key segment of its sovereign debt hit a major roadblock this week, as talks with holders of $2.6 billion in GDP-linked warrants failed to yield an agreement.

The country’s finance ministry, following the opening round of negotiations in Washington, acknowledged the impasse and said it would “consider all available options” while continuing discussions with investors, per The Financial Times.

The breakdown in talks threatens Kyiv’s ability to avoid a looming payment of nearly $600 million due at the end of May — a liability tied to the country’s economic performance in 2023.

Issued during a 2015 debt restructuring, the GDP warrants were designed to give creditors a share in Ukraine’s future economic upside. The instruments offer payouts if Ukraine’s annual GDP growth exceeds 3 per cent. While they were excluded from the broader $20 billion bond restructuring carried out last year due to their complexity, the International Monetary Fund (IMF) recently warned that the warrants pose “an important risk” to the stability of Ukraine’s ongoing $15.5 billion bailout program.

Kyiv argues that the warrants are no longer appropriate in the context of a post-invasion recovery. “The GDP warrants were designed for a world that no longer exists,” the finance ministry said on April 24, highlighting that Ukraine’s modest growth in 2023 followed a nearly 30 per cent contraction triggered by Russia’s full-scale invasion in 2022.

Western backers of Ukraine are also wary of allowing potentially billions of dollars to flow to private investors while the country remains in crisis and dependent on international financial assistance.

By Khagan Isayev