Hedge funds controlling roughly $3 billion of Ukraine’s GDP-linked warrants have entered restricted negotiations with Kyiv, a development that could reshape wartime spending and reconstruction. Bloomberg reported a creditor group led by Aurelius Capital Management LP and VR Capital Group signed non-disclosure agreements to begin confidential talks, with Cleary Gottlieb Steen & Hamilton LLP and PJT Partners Inc. advising the group. The warrants, issued in 2015 and governed by English law, were excluded from a separate $20 billion bond restructuring after Russia’s 2022 invasion and carry payments that could rise sharply if growth recovers. The immediate next step is the private NDA talks as Kyiv and creditors try to reconcile competing exchange offers ahead of consent-fee and deferred payment obligations.

The read here is simple. These aren't ordinary creditors, and their demands matter more than the headlines. Hedge funds representing roughly $3 billion of GDP-linked warrants sit on instruments that pay extra when Ukraine’s economy grows above set thresholds. That payout structure means holders can claim oversized sums if activity rebounds, at a time when every dollar is earmarked for defence, humanitarian relief and rebuilding.

Why the warrants matter

The GDP-linked warrants were issued in 2015 as a sweetener to international bondholders. They were carved out of the $20 billion bond restructuring agreed with many international bondholders after Russia’s 2022 full-scale invasion. The warrants are governed by English law and sit outside that earlier settlement, which has left Kyiv facing a separate, politically sensitive set of negotiations.

Bloomberg first reported the restart of talks after Ukraine sought to renegotiate the multibillion-dollar warrants. A creditor group organised to enter restricted discussions under non-disclosure agreements so they could exchange non-public information. The group is advised by Cleary Gottlieb Steen & Hamilton LLP and PJT Partners Inc. The warrant holders include hedge funds Aurelius Capital Management LP and VR Capital Group.

At stake are two payments Kyiv was due to make in August. Those consist of a consent fee and a deferred payment tied to earlier periods. Market attention has risen as trading in the instruments picked up after economic activity began to recover in 2023. Analysts including Simon Waever at Morgan Stanley flagged the likelihood that the warrants would eventually be exchanged into bonds.

Mastheads

Where Kyiv and creditors disagree

Kyiv has proposed a straight exchange. The government’s offer would swap all outstanding GDP warrants for a package of cash and new sovereign C bonds. The terms it outlined included $50 in cash, a $10 consent fee and $1,260 in new bonds for every $1,000 of warrants.

Those new instruments would mature between 2030 and 2033 and carry step-up coupons paid semi-annually.

Creditors returned a materially richer package. Their counterproposal included $12.50 in cash, a $25 consent fee and $1,400 in new bonds per $1,000 of warrants, together with structural protections, notably a so-called claim reinstatement clause that would raise the bonds’ face value if Ukraine defaulted again. Kyiv dismissed those demands as incompatible with its debt-sustainability targets. Talks stalled in early November. Kyiv halted talks on Nov. 5 after both sides rejected each other’s proposals, the finance ministry said in a Nov. 6 statement that "very limited engagement on economics was achieved."

The numerical gap is the core problem. Creditors seek higher upfront compensation and stronger legal protections. Kyiv is trying to cap immediate cash outflows and preserve long-term debt metrics that underpin international aid and market access. The difference in the proposed exchange ratios and fees isn't abstract. It translates directly into how much of the state’s future cash will be committed to private creditors instead of defence and reconstruction.

Civil society groups have weighed in with sharp language. Eurodad and Ukrainian group Sotsialniy Rukh warned that GDP-linked warrants can produce oversized payouts when growth rebounds, citing media reporting that payments of up to $6.6 billion could be triggered, around 2.5 times the original value of the instruments. Artem Tidva of Sotsialniy Rukh argued that "these instruments were created for a world that no longer exists," and urged Ukraine to refuse payments unless a full restructuring is agreed. Kristina Rehbein of erlassjahr.de warned that hedge funds such as Aurelius have a history of aggressive litigation against debtor countries. Tim Jones of Debt Justice UK urged the United Kingdom to consider legal protection measures because the instruments are governed by English law. Sébastien Brion of the French Platform on Debt and Development accused private lenders of pursuing "predatory profit" amid wartime hardship.

Market participants are watching whether the creditor committee that negotiated the earlier bond deal will join. International creditors who negotiated the earlier bond deal included asset managers representing a minority share of outstanding bonds; it was unclear whether that committee would participate in the warrants talks. Trading volumes suggest investors expect some form of exchange. Simon Waever at Morgan Stanley highlighted the likelihood that warrants would eventually be swapped into bonds, which is what both sides are effectively bargaining over now.

My read is that the substance matters more than the optics. A closed-door NDA process lets both sides share detailed data. It also concentrates leverage in the hands of a small group of funds that have been rated by civil society as litigious and by markets as opportunistic. How Kyiv balances legal risk, cash needs and donor confidence will determine whether these talks end in a workable swap or a costly legal fight.

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Watch August, when Kyiv must make a consent fee and a deferred payment to warrant holders. The restricted NDA negotiations are the immediate step to reconcile the government’s exchange offer with creditors’ counterproposals.

This article was created with AI assistance.