Ukraine repurchases 10% of GDP warrants

Ukraine’s Finance Ministry has repurchased about 10%
of outstanding GDP-linked securities (GDP warrants, UKRAIN’40), according to
its Aug. 14 announcement on the Irish Stock Exchange. The ministry stated it
has no current intention to resell these securities. Ukraine’s debt management
strategy for 2019-2022 “includes pro-active liability management operations in
order to smoothen Ukraine’s state debt service profile”, the ministry wrote.
Based on this strategy, the ministry might continue purchasing its debt
securities, including the GDP warrants.

Recall, Ukraine’s GDP-linked securities were issued in
2015-2016 for the total nominal amount of USD 3.24 bln in exchange for
written-down Ukrainian sovereign and quasi-sovereign debt of the same size. The
securities offer annual payments in May of 2021-2040 in case Ukraine’s real GDP
growth two years before exceeds 3.0%.

Alexander Paraschiy: As payments
under Ukraine’s GDP-linked securities have no upper limits for most of the
period of their circulation, their price is very likely to exceed par value in
the mid-term. The average market price of the securities since the beginning of
the summer (the most likely period of repurchase) was 90.7% of par, and in the
first half of August it was 86.7% of par, which made it efficient to repurchase
them.

The purchase is a positive signal for the holders of
Ukraine’s short-term debt as it indicates MinFin has enough dollar liquidity
for meeting any external debt obligations (otherwise it wouldn’t have spent up
to USD 300 mln for the warrant repurchase). This is also a good signal for the
holders of GDP warrants, as it indicates MinFin is anticipating large payments
under the warrants in the mid-term.