Ukraine's government said on Thursday it had not been able to agree to a deal with holders of its GDP-linked warrants to restructure the bond-like debt instruments, although both sides said they were prepared to keep talking.
"Ukraine indicated that it could not accept the Restricted (GDP Warrant) Holders’ Proposal and declined to make any further proposal," the government said in a statement.
Ukraine offered warrant holders two options: exchange the warrants for bonds, or cancel payments through 2028 in exchange for some additional bonds and an extension, until May 2029, of a "call option" that would allow Ukraine to buy back the warrants.
The debt holders said Ukraine's proposal had "no prospect of approval" and did not "form the basis for a viable point of engagement".
They also said they were willing to continue dialogue and laid out their rejected proposal for the next payment due on the debt - Ukraine paying $406 million in cash plus $209 million in the form of new bonds.
Kyiv said that it intended to "continue engagement" with the debtholders, and would consider "all available options" to restructure the debt, which is a stipulation of its IMF programme.
Ukraine threw in the $2.6 billion worth of GDP warrants - fixed income securities indexed to economic growth - to sweeten its 2015 debt restructuring following Russia's annexation of Crimea.
But their complex structure meant they were not part of last year's broader $20 billion restructuring that became necessary following Moscow's full-scale invasion in 2022.
Kyiv had been in talks with a group of warrant holders ahead of the next scheduled payout of the instruments of just over $500 million at the start of June.
It also comes as Kyiv faces mounting pressure from U.S. President Donald Trump to agree to a ceasefire deal.
"The GDP warrants were designed for a world that no longer exists," Ukraine's Finance Minister Sergii Marchenko said in a statement following the breakdown of talks.
He said that the modest rebound in Ukraine's economy over the last couple of years had done little to mend the near 30% slump caused by Russia’s invasion in early 2022.
"These financial instruments must not become an obstacle to our recovery," Marchenko said.
The initial market reaction saw the GDP-linked debt, which is denominated in dollars, fall over 2 cents to just over 70 cents on the dollar - or a 30% discount to its face value.
It had recovered roughly half of that drop, however, by afternoon European trading, to stand at 72.5 cents.
