Ukraine issues new Eurobonds worth $11.95bn, GDP warrants

By bne IntelliNews November 12, 2015

The Ukrainian government approved an issue of nine series of new Eurobonds and the country's GDP warrants as part of its debt operation with private investors, according to a  Cabinet resolution.

The total par value of the new Eurobonds is $11.951bn, which would be nearly equally split between the nine series, with the smallest being $1.155bn (maturing in 2019) and the biggest being $1.531bn (maturing in 2020).

The newly issued bonds will have a coupon rate of 7.75%, paying semi-annually with the first payment due March 1; each series will mature in one-year intervals starting September 1, 2019 and finishing September 1, 2027.

On October 14, private creditors voted in favour of Ukraine's proposed $18bn debt restructuring deal, while Russia, which holds a $3bn Eurobond due in December, refused to take part. Moscow has said it will regard a Ukrainian failure to repay the Eurobond as a sovereign default.

The creditors approved the restructuring of around $15bn of Ukraine's external debt, which achieves a 20% debt reduction for Ukraine (around $3bn) and allows the country to avoid payments of any of the previously scheduled $8.5bn of principal falling due under such bonds during the next four years, the Ukrainian finance ministry said earlier.

According to the Ukrainian government, the 13 issues of old government Eurobonds at a total value of 15bn are recognised as cancelled. The holders of the old notes who failed to exchange them for new issues have 150 days to complete their exchange.

As part of the debt operation, the government is also issuing so-called Value Recovery Instruments (VRI), or GDP warrants, which guarantee additional payments in the event that Ukraine's GDP rebounds strongly in the future, at a total par value of $2.916bn.

The additional payments will be triggered if GDP grows at more than 3% per year, and if nominal GDP exceeds $125bn (compared to approximately $85bn in 2015).

Payments under these conditions will not start before January 2021 and will end in 2040. They will be made two years after the relevant thresholds have been crossed, e.g. payments triggered by GDP data for 2019 will be made in 2021. Payment will be limited to a total of 1% of GDP in the reference year until 2015, when this ceiling will be lifted.

"At this stage, the holders of 3% of old Eurobonds still failed to exchange their paper for the set of new bonds (of a total par value of $0.36bn, we estimate) and derivatives," Alexander Paraschiy at Kyiv-based brokerage Concorde Capital said in a note to clients published on November 12.

In addition to this, the expert added, Ukraine may issue more new Eurobonds maturing in 2019 and 2020, as well as GDP warrants, if it secures the restructuring of $550mn in Eurobonds issued by Kyiv city.

The ad hoc committee of the holders of Kyiv city's $250mn notes that were due on November 6, and 22% of the city's $300mn notes due on July 11, 2016, have officially rejected a restructuring proposal put to them earlier in November and called for a "balanced proposal" from the municipality authorities and the Finance Ministry.

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