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Op-Ed by Yuriy Butsa, Government Commissioner for Public Debt Management, for Interfax Ukraine (October 4, 2022)

'Wake Me Up When September Ends’ by Green Day is the favorite song of our Debt management office due to the fact that Eurobond payments traditionally peak in September, and usually refinancing such significant repayments is a challenge. However, we passed September calmly this year, because the majority of investors agreed to our proposal to defer payments not only on our Eurobonds due this and next year, but for all Eurobonds issued and guaranteed by the state for a total amount of over USD 21 billion.

We started this large-scale public debt management operation in July this year. Until very recently, we hoped we would be able to make large FX payments without the threat of financing all priority budget expenditures during the period of martial law. However, the reduction of the government's FX liquidity, the slower than we expected receipt of financial assistance from international partners, the rapid decrease of the NBU's foreign exchange reserves, as well as the feedback we received from our international investors, became the main reasons for our proposal to investors to approve amendments to the conditions of Ukraine’s government Eurobonds and GDP warrants.

The private and public sectors acted as a united front in support of Ukraine - our proposal to investors was coordinated with the announced proposal by the G7 countries and the members of the Paris Club to suspend debt service payments for public debt until the end of 2023, with the possibility of extending the suspension of payments for another year. The negotiations conducted by our team led to the alignment of the approach of the private and public sectors, which are rarely unanimous in their position.

What has changed in terms of Eurobonds as a result of the transaction we successfully completed in August? The maturity dates of all 13 series of Eurobonds are extended by two years, and coupon payments on all series of Eurobonds falling due over the next two years are deferred until the end of the 2-year period. The deferred coupon payments themselves bear interest at the applicable contractual rate until the end of the deferral period– then the deferred coupon and associated interest can be paid in cash or capitalized (added to the principal amount of the relevant Eurobonds) at the discretion of Ukraine.

In addition to amendments in the conditions of the Eurobonds, we managed to make amendments in the conditions of the derivative instruments issued during the restructuring in 2015, so called GDP warrants. Thanks to amendments, supported by approximately 93% of holders of these instruments, the cap on the GDP warrants payments is reduced from 1% to 0.5% of GDP for the payment in 2025 (based on the year 2023 growth). Investors agreed that Ukraine should not overpay for the statistical growth of the economy, which will only be recovering from the economic shock caused by the military aggression of the Russian Federation. In addition, Ukraine will have the opportunity to redeem/cancel GDP warrants in whole or in part at a price equal to the notional amount of warrants in the period from August 2024 to August 2027.

In this transaction, we realized the value of the goodwill we have built over the past years of transparent work with the investment community, which is usually impossible to estimate. The support of Ukraine from investors was simply impressive - in addition to the expressed readiness to participate in the reconstruction of Ukraine, investment funds, whose main task is, as a rule, to increase capital, provided their support for the Eurobonds proposal without a consent fee, which is a customary condition for such transactions. Understanding that our investors share common values ​​with us and put them above short-term profit making inspires us to prepare for the next market transactions and return to the market as soon as the victory of civilized values ​​over barbarism is won by us on the military front.