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Concorde Capital Ukraine: Ukraine repurchases 10% of GDP warrants

August 17, 2020

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.

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