Ukraine's finance ministry said on Friday it would not be paying more than half a billion dollars due to holders of its GDP warrants, marking the first payment default since it created the instruments.
The war-ravaged country said it owes $665 million on June 2 to holders of the $3.2 billion worth of warrants, based on 2023 economic performance.
Last year, Ukraine's parliament approved a payment moratorium on the GDP-linked securities from May 31.
"Ukraine remains committed to implementing a comprehensive, fair and equitable restructuring of the GDP-linked Securities," it said in a statement, adding it must comply with debt targets outlined in its IMF programme and in line with the comparability of treatment with official lenders.
Advisory and legal representatives for the warrant holders did not immediately provide a comment.
Ukraine created the instruments - fixed income securities indexed to economic growth - to sweeten its 2015 debt restructuring. But their complex structure meant they had not been part of last year's broader $20 billion restructuring.
Ukraine's economy cratered after Russia's full-scale invasion in 2022, falling close to 30%. And while its economy staged modest growth in 2023 and 2024, its gross domestic product remains below the pre-war level.
Finance Minister Serhii Marchenko described the warrants, with a payout linked to growth, as "designed for a world that no longer exists".
Formal restructuring talks between Ukraine and warrant holders broke down in late April, with the two sides far from a deal. Chief debt negotiator Yuriy Butsa privately met with individual warrant holders in London earlier this month to prepare them for non-payment and emphasize that Ukraine would rather take time to get the right deal than rush to a quick deal before the deadline.
A cross-default clause with the country's bonds was removed last year during restructuring, but the payment default threatens the years Butsa and his team have spent cultivating a positive relationship with investors.
Ukraine's economy has been battered by Russia's ongoing attacks, particularly on its energy infrastructure, and it remains heavily reliant on the United States and Europe for financial support as well as weapons and military equipment.
Its tumultuous relationship with U.S. President Donald Trump has cast doubt on the durability of that country's support for Ukraine, particularly as peace talks with Russia drag on.
The next round of peace talks is scheduled to take place in Istanbul next week, but Ukraine has said it wants to see a document setting out Russia's proposals for a peace deal before it sends a delegation.
