FT: Ukraine GDP-linked warrants surge as government flags "definite plan"

The growth-linked securities Ukraine threw in to sweeten its 2015 debt restructuring surged on Tuesday after the country's new prime minister fanned bets it was looking to buy them out to prevent massive future payments that could cripple its finances.

Oleksiy Honcharuk told reporters in Kyiv on Monday that the government had a "definite plan on how to minimize the harm from having these obligations" saying nothing should stand in the way of improving the country's economy, The Financial Times reports.

"To be afraid of economic growth because we have to fulfill some obligations, this is an inadequate approach," he added.

Read alsoPM Honcharuk vows at least 40% economy growth in five years

The comments sent the GDP-linked warrants in question up 4 percentage points to 92 points according to Tradeweb data. They have already surged from around 62 points in May before presidential elections.

Ukraine tossed in $3.6 billion in GDP warrants – bonds indexed to economic growth – in its 2015 restructuring after it forced investors to write off 20% of the value of their original holdings.

The warrants, with a notional face value of $3.6 billion, are structured to pay out depending on economic data for 2019-2038 although there is a slight delay until 2021 before they start formally paying out.

Read alsoUkraine makes largest payment on debt in 2019 at $1.1 bln

Also, for the payments to start, Ukraine's economy must exceed a minimal nominal GDP threshold of $125.4 billion in any given reference year when calculated using the average hryvnia/dollar exchange rate.

If real, or inflation-adjusted GDP growth then exceeds 3 percent — as it is expected to do this year — Ukraine will pay warrant holders a sum equal to 15 percent of economic output above this threshold. However, if real growth is over 4 percent, the payment rises to 40 percent of national wealth created above the higher level.