Cleansing Announcement

Ukraine (Ministry of Finance)

17 June 2024

 

NOT FOR DISTRIBUTION IN ANY JURISDICTION IN WHICH SUCH DISTRIBUTION WOULD BE PROHIBITED BY APPLICABLE LAW.

17 June 2024

Press Release - For Immediate Release

Kyiv, Ukraine: The Government of Ukraine ("Ukraine") announces today that over a twelve-day period from 3 to 14 June 2024, representatives of Ukraine held meetings with members of the ad hoc creditor committee (the "Ad Hoc Creditor Committee") comprised of a number of major institutional asset managers and other long-term investors in Ukraine representing around 20% of the outstanding amount of Ukraine's Eurobonds, as well as with certain other holders of Eurobonds ("Investors") on a bilateral basis. Ukraine entered into the consultation period with the Ad Hoc Creditor Committee and the Investors to discuss, under non-disclosure agreements, the potential terms of a restructuring of Ukraine's thirteen series of outstanding Eurobonds (the "Eurobonds") listed in Annex A.

Ukraine was joined by its legal and financial advisors, White & Case LLP and Rothschild & Co, respectively, and the Ad Hoc Creditor Committee were joined by their legal and financial advisors, Weil, Gotshal and Manges (London) LLP and PJT Partners (UK) Ltd, respectively.

As part of the ongoing restructuring process, the consultation period was designed to enable Ukraine to deliver to the Ad Hoc Creditor Committee and the Investors a restructuring proposal and to enable the Ad Hoc Creditor Committee and the Investors to directly engage and exchange ideas with Ukraine and its advisors.  In addition, the Ad Hoc Creditor Committee were provided the opportunity to directly engage with staff of the International Monetary Fund ("IMF") and the Secretariat of the Group of Creditors of Ukraine ("GCU"). 

As detailed in Annex B, Ukraine's proposal (the "Sovereign Proposal") consisted of the exchange of the Eurobonds for either (i) a package of fixed income instruments (the "Vanilla Bonds") and state-contingent instruments (the "SCDIs") ("Option 1") or (ii) a package of Vanilla Bonds ("Option 2"). In relation to Option 1, the SCDIs would be converted into Vanilla Bonds based on a single test in 2027 with a face value dependent upon Ukraine's performance on tax revenues, subject to meeting conditions around real GDP levels projected in the IMF's baseline scenario. As such, if the revenue test and GDP target is met, the SCDIs would be replaced by fixed-income instruments of Ukraine whose cash flows would be certain. Both options have been designed to deliver holders cash flows during the IMF program period and provide for a nominal haircut ranging between 25 and 60% depending on the country's recovery over the IMF program period. The Sovereign Proposal also incorporated certain legal terms, including a "loss reinstatement" provision and a "most-favoured creditor" clause.

Prior to entering into discussions with the Ad Hoc Creditor Committee and the Investors, Ukraine had shared the Sovereign Proposal with IMF staff and the GCU. Both Options under the Sovereign Proposal were assessed on a preliminary basis by IMF staff as consistent with the debt sustainability objective of Ukraine's IMF Extended Fund Facility (the "EFF") under the baseline macroeconomic framework, conditional on the continued validity of the GCU agreement and the authorities' restructuring strategy. Specifically they were assessed to be consistent with the December 2023 IMF DSA principal targets of (1) debt-to-GDP ratio of 65% by end 2033 and (2) an average GFN-to-GDP ratio of 8% in the post-program period of 2028-2033. The proposal also aimed to respect the complementary targets of (1) debt-to-GDP ratio of 82% of GDP by 2028, and (2) flow relief on external debt service obligations of 1-1.8% of GDP per year over the IMF program period (collectively, the "IMF DSA targets"). The Sovereign Proposal and overall restructuring strategy also achieves compatibility with the IMF DSA targets in scenarios below the IMF baseline, as required under the IMF's Exceptionally High Uncertainty framework, through Ukraine's delivery of specific policy commitments. IMF staff noted that these were preliminary assessments, and that IMF staff would provide final assessments only after the parties had reached a tentative agreement in principle. The Sovereign Proposal was also assessed as compliant with the Comparability of Treatment principle of the GCU, to ensure acceptability by official creditors and donors of Ukraine, as confirmed by the GCU. 

Ukraine also briefed the Ad Hoc Creditor Committee and the Investors that the baseline macroeconomic framework reflecting discussions for the 4^th review of the EFF would be less favourable as compared to the macroeconomic framework reflected in the 3^rd review of the EFF.

During the discussions Ukraine highlighted that the cashflows in respect of the GDP-linked securities of Ukraine (the "Warrants") are included in the IMF DSA and, therefore, will need to be taken into account in the design of any restructuring solution for the Eurobonds that meets the IMF DSA targets. In this connection Ukraine proposed removal of events of default related to or referencing the Warrants from the new instruments to be delivered as part of the Sovereign Proposal. Ad Hoc Creditor Committee did not respond to this element of the Sovereign Proposal.

During the course of the consultation period, Ukraine requested feedback from the Ad Hoc Creditor Committee and the Investors on the Sovereign Proposal. The Ad Hoc Creditor Committee provided their feedback to the Sovereign Proposal together with an indicative proposal (the "Committee Proposal").

The Committee Proposal is set out in Annex C. It consisted of two index-eligible debt instruments: a bond with a fixed 7.75% coupon on 40% of the Eurobond principal and accrued interest (the "Market Bond") and a bond with variable, step-up coupons on 40% of the Eurobond principal and accrued interest (the "Recovery Bond"). The Committee Proposal would deliver a 20% nominal haircut and allow for the potential full recovery of the concessions made in certain circumstances where there is performance above the IMF baseline. As part of its feedback, the Ad Hoc Creditor Committee indicated general agreement on the inclusion of a loss reinstatement clause in the new bond documentation and highlighted the need for further clarity relating to the assessment criteria for Comparability of Treatment principle.

Ukraine responded to the Committee Proposal (the "Sovereign Response"), which included feedback received from IMF staff and the GCU secretariat on the Committee Proposal, stating that this proposal would not be compliant with the objectives of the debt operation. Respectively, IMF staff determined on a preliminary basis that the Committee Proposal would breach the IMF DSA targets under the baseline macroeconomic framework, while the GCU secretariat communicated that any cashflows to private creditors during the IMF program period needed to remain symbolic in order to meet Comparability of Treatment requirements.

At the same time, as part of the Sovereign Response and to elaborate further on index-eligible options, Ukraine presented certain illustrative structures, including bonds with a step-up and/or step-down structure, zero coupon bonds and macro-linked bonds, with a different composition of nominal haircut and coupon levels - haircut levels being comprised in the range of 40 to 60 cents. In particular, Ukraine presented three illustrative structures: (i) in response to the Committee's Proposal, an illustrative amended base structure comprised of "market bonds" and "recovery bonds" (the "Amended Base Structure"); and (ii) two illustrative scenarios expanding on Ukraine's Option 1 and Option 2 set out in the Sovereign Proposal with contingent features, ("Alternative 1" and "Alternative 2", respectively).

·    Amended Base Structure: The Amended Base Structure was compatible with the 3^rd IMF program review figures, did not account for the 4^th IMF program review figures  and comprised of: (i) a "market bond" on 30% of the Eurobond principal and accrued interest with a coupon of 4% between 2024-2027 and 6% from 2028; and (ii) a "recovery bond" on 30% of the Eurobond principal and accrued interest with zero coupon between 2024-2027, 3% from 2028-2033 and 6% from 2034 onwards.

·    Alternative 1: Alternative 1 presented a illustrative structure comprised of: (i) Vanilla Bonds on 40% of the Eurobond principal and accrued interest with a coupon of 1% from 2024-2025, 3% from 2026-2027 and 6% from 2028 onwards; and (ii) an SCDI with an illustrative recovery of up to 35% of the Eurobond principal and accrued interest, with a coupon of 6% from 2028 if a single test was met in 2028.

·    Alternative 2: Alternative 2 presented an illustrative structure comprised of: (i) Vanilla Bonds on 30% of the Eurobond principal and accrued interest; and (ii) an SCDI which presented a potential illustrative recovery of 10% on the Eurobond principal and accrued interest initially and a maximum potential recovery of 45%, but could also be adjusted downwards upon a single test in 2027, such that the illustrative recovery could be zero. 

These structures did not constitute a proposal from Ukraine and were not vetted by the IMF or the GCU, but demonstrated Ukraine's willingness to consider alternative structures as long as they deliver the financial relief needed to meet the IMF DSA targets. Ukraine also highlighted that those illustrative structures and associated economics were based on the 3^rd IMF programme review figures and should be likely revised downward when taking the 4^th IMF programme review figures into consideration. Ukraine also highlighted that the GCU secretariat has only approved any symbolic cashflows to private creditors during the IMF program period in order to meet Comparability of Treatment requirements.

Towards the end of the consultation period, the Ad Hoc Creditor Committee subsequently responded to these illustrative structures by putting forward an adjusted proposal (the "Adjusted Committee Proposal"). This is set out in Annex D. The Adjusted Committee Proposal increases the nominal haircut to 22.5% through certain adjustments to the Recovery Bond, while also introducing a split Cash/PIK coupon structure on the Market Bond during the IMF program period, whereby 7.25% is payable in cash and 0.5% is paid-in-kind (PIK) over the 2024-2027 period, with a full cash coupon of 7.75% payable thereafter. The Adjusted Committee Proposal continues to allow for the potential full recovery of the concessions made in certain circumstances where there is performance above the IMF baseline, as described in the original Committee Proposal.

The Adjusted Committee Proposal was shared with IMF staff, which assessed it on a preliminary basis as non-compliant with the IMF DSA targets.  It was also shared with the GCU secretariat, which reiterated that any cashflows during the IMF program period needed to remain symbolic.

Although Ukraine and the Ad Hoc Creditor Committee did not come to an agreement on restructuring terms during the consultation period, Ukraine and the Ad Hoc Creditor Committee will continue engagement and constructive discussions through their respective advisors, and Ukraine will continue bilateral discussions with other Investors, with a view to making further progress and reaching an agreement in principle at the earliest opportunity.

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This announcement is made by the Government and constitutes a public disclosure of inside information under Regulation (EU) 596/2014 (16 April 2014).

Annex A

Eurobonds

Instrument	Coupon	Maturity
USD 912 m 7.75% note	7.75%	Sep-24
USD 1.355bn 7.75% note	7.75%	Sep-25
USD 750m 8.994% note	8.994%	Feb-26
USD 1.34bn 7.75% note	7.75%	Sep-26
USD 1.33bn 7.75% note	7.75%	Sep-27
EUR 1bn 6.75% note	6.75%	Jun-28
USD 1.32bn 7.75% note	7.75%	Sep-28
USD 1.31bn 7.75% note	7.75%	Sep-29
USD 1.6bn 9.75% note	9.75%	Nov-30
USD 1.75bn 6.876% note	6.876%	May-31
EUR 1.25bn 4.375% note	4.375%	Jan-32
USD 3bn 7.375% note	7.375%	Sep-34
USD 2.6bn 7.253% note	7.253%	Mar-35

Annex B

Sovereign Proposal

This indicative term sheet sets out the key commercial terms upon which Ukraine has proposed to restructure the Eurobonds (the "Transaction")[1]. This term sheet is not exhaustive and does not constitute or imply a commitment by Ukraine to a restructuring transaction. The completion of the Transaction will be subject, among other things, to execution of definitive documentation and satisfaction of customary closing conditions.

The proposed Transaction consist of the exchange of Eurobonds for (i) a package of two types of new securities: the Vanilla Bonds and a contingent instrument in the form of revenue-based securities (the "Ukraine Recovery Instrument" or "URI" and together with the Vanilla Bonds, the "New Securities") or (ii) a package of new Vanilla Bonds, in each case as summarized below. The offer is designed to comply with the parameters of Ukraine's IMF Extended Fund Facility, and specifically with the December 2023 IMF DSA targets of (1) debt-to-GDP ratio of 82% by end 2028, (2) debt-to-GDP ratio of 65% by end 2033 and (3) an average GFN-to-GDP ratio of 8% in the post-program period of 2028-2033.

The terms of the Vanilla Bonds are calibrated to comply with the IMF's baseline scenario while the Ukraine Recovery Instruments are designed to provide upside value to holders of Eurobonds in the event of Ukraine's outperformance of the central government tax revenue indicator (excluding social security contributions) vis-à-vis the IMF's baseline scenario, reflecting greater tax mobilization. A control variable will be the average real 2025-2026 GDP recovery to at least 85% of the pre-war real GDP level (2021).

The Exchange Offer memorandum will include a specific risk factor alerting holders to the risk that, in the event that Ukraine underperforms vis-à-vis the IMF's baseline scenario, a further debt treatment of the Vanilla Bonds will be required. See "Risk Factor related to Vanilla Bonds" below.

Structure of Exchange Transaction	The debt restructuring will be consummated through an exchange offer open to all eligible holders of Eurobonds. Ukraine will offer to exchange the Eurobonds into 5 series of new Vanilla Bonds and, in the case of Option 1, also 5 series of new URIs (together, the "New Securities"). At settlement of the exchange transaction, a holder of a series of Eurobonds will receive one or more series of Vanilla Bonds and, in the case of Option 1,  one or more series of URIs, pursuant to an allocation schedule to be set forth in the exchange documentation. In the case of Option 1, the parties may consider a mechanism for voluntary reallocation of Vanilla Bonds and URIs among participants in the exchange transaction to reflect the preferences of such participants, subject to the aggregate nominal amount of Vanilla Bonds and notional amount of URIs issued at settlement not being increased.
Currency	United States Dollars
Governing Law and Jurisdiction	English law and the English courts

Indicative term sheet - Option 1

The Vanilla Bonds

Principal Amount	Holders will receive US$400 principal amount of Vanilla Bonds for each US$1,000 in principal amount[2] of Eurobonds exchanged and interest accrued as a result of the 2022 restructuring amendments to the terms of the Eurobonds. Each series of Vanilla Bonds will be issued in an aggregate face amount sufficient to ensure adequate liquidity and index eligibility, all of them being benchmark size. The commercial terms of the Vanilla Bonds are designed to meet programme debt-related targets under the current IMF baseline scenario.
Maturities and Principal Amortization	The Vanilla Bonds will mature in 2034, 2035, 2036, 2038, and 2040, bullet repayment at maturity.
Coupon	Interest shall be payable on each series of Vanilla Bonds on a semi-annual basis in arrear, on [December 15 and June 15] of each year until maturity, at the following annual rates for interest payment dates falling in the specified calendar year: H2 2024 -2025: 1.00% 2026-2027: 3.00% 2028 to maturity: 6.00% Interest will accrue from the issue date of each series of Vanilla Bonds to the relevant maturity date, and will first be paid on [December 15], 2024.
Risk Factor related to the Vanilla Bonds	The Exchange Offer Memorandum will include a specific risk factor stipulating that: "The terms of the Vanilla Bonds, including the principal amount, amortization profile, maturity date, and interest rate on each series of Vanilla Bonds, have been calibrated to allow Ukraine to reach the debt sustainability targets set forth in its Extended Fund Facility with the IMF approved on March 31, 2023 ("EFF") under the baseline macroeconomic framework approved by the IMF Executive Board on [June ___, 2024 in its fourth review] of the EFF (the "baseline scenario"). The baseline scenario is subject to significant risks, including those arising from the exceptionally high uncertainty stemming from the war, potential policy slippages and delays or shortfalls in external financing. The IMF Executive Board in its [fourth review] also set forth a downside macroeconomic framework (the "downside scenario"), as required under the IMF's policies for lending "under exceptionally high uncertainty", which takes into account the impact of the realization of certain of these risks. In the event that Ukraine underperforms vis-à-vis the baseline scenario, including but not limited to a circumstance where the IMF's "downside scenario" materializes, a further debt restructuring exercise affecting the Vanilla Bonds will likely be required. Such further treatment of the Vanilla Bonds may include reductions in principal amount, extension of maturities, and/or reduction in the interest rate applicable to each series of Vanilla Bonds, in order to ensure debt sustainability targets in the EFF are achieved under the then-prevailing macroeconomic conditions and outlook. There can be no assurance in these circumstances that Ukraine will be in a position to perform any or all its obligations under the Vanilla Bonds unless or until such further restructuring is implemented."
Language expected to be included in Letter of Intent to the IMF / IMF Memorandum of Economic And Financial Policies of Ukraine	"Our international partners have assured us of their continued support to help ensure that debt sustainability is restored, and the program is fully financed. As part of our efforts to restore debt sustainability we announced on March 24, 2023, the intention to undertake a restructuring of our external public debt, in line with program parameters, and our plan remains to reach agreement with commercial creditors before the end of August 2024. Should the case arise where the macroeconomic and debt outlook worsen, we also commit to undertaking a further external commercial debt treatment as needed to restore debt sustainability in line with program parameters".
[Loss Reinstatement	In March 2023, the Group of creditors of Ukraine ("GCU") agreed to provide an additional official sector debt treatment to contribute to restore debt sustainability of Ukraine upon the earlier to occur of (i) the end of the period of Exceptionally High Uncertainty and (ii) the end of the IMF program in 2027 (the "GCU treatment"). Such additional debt treatment will be provided prior to any further required treatment of the Vanilla Bonds. In the event that application by the GCU of Comparability of Treatment ("CoT") principles at the time of the GCU treatment requires that a further treatment of commercial claims be implemented, then Ukraine has committed to undertake such further debt treatment of commercial claims (the "further debt treatment"). In this circumstance, loss reinstatement provisions embedded in the terms of the Vanilla Bonds shall reinstate the original (pre-2022 restructuring) claim of bondholders plus accrued and unpaid interest thereon up to the date of the further debt treatment less the aggregate amount of interest paid on the Vanilla Bonds up to the date of the further debt treatment, provided that the loss reinstatement provisions shall only be valid in relation to a further debt treatment that is confirmed as necessary based on the GCU treatment and CoT and will expire should no such further debt treatment be required at that time.]
No Warrants related Events of Default	The Vanilla Bonds (unlike certain series of the Eurobonds) will have no events of default related to or referencing the Warrants.
Most-favoured creditor clause	Ukraine shall not enter into any compromise or agreement in respect of commercial debt claims (including the sovereign guaranteed commercial debt of Ukravtodor and Ukrenergo) that would provide to holders of such claims a  material difference in recovery value (to be defined) than that received by holders of Eurobonds participating in the proposed debt exchange without offering substantially similar terms (or other consideration of equivalent value) on a rateable basis to all holders of Vanilla Bonds issued in the proposed Debt Exchange.
[Ad Hoc Creditor Committee adviser's fees	The exchange documentation will provide a mechanism for payment or reimbursement of all reasonable fees, costs and expenses (including legal and financial adviser fees) of the Ad Hoc Creditor Committee on mutually satisfactory terms and in line with the market standard by way of deduction of such fees from the first coupon payment on the Vanilla Bonds or otherwise.]

The Ukraine Recovery Instruments

Structure of Ukraine Recovery Instruments	The Ukraine Recovery Instruments shall constitute a new type of security of the Issuer that provides the holder with the right to receive on the Exchange Date, upon satisfaction of the Exchange Condition (as defined below), new index eligible Vanilla Bonds of the Issuer[3], in a principal amount of up to the Notional Amount of the Ukraine Recovery Instrument (i.e. up to US$1,000 in principal amount of Vanilla Bonds for every US$1,000 of the Notional Amount), allowing further liquidity of the instruments. Prior to being exchanged for a new Vanilla Bonds, the Ukraine Recovery Instrument shall not represent a debt obligation of the Issuer and shall not entitle their holders to any principal or interest payments.
Notional Amount of Ukraine Recovery Instruments	Holders will receive a Notional Amount of US$350 in Ukraine Recovery Instrument for every US$1,000 in principal amount of Eurobonds exchanged and interest accrued as a result of the 2022 restructuring amendments to the terms of the Eurobonds.
Cancellation of Ukraine Recovery Instruments	The Ukraine Recovery Instruments shall be cancelled on [September][●], 2027[4] (the "Cancellation Date"), provided that one of the following has occurred: (i) they have been exchanged for the relevant amount of the Vanilla Bonds of the Issuer on the Exchange Date as further described herein, (ii) the Exchange Condition has not been met or (iii) the Exchange Principal Amount (as defined below) is zero.
Principal Exchange	Subject to the satisfaction of the Exchange Condition (as described below), holders of Ukraine Recovery Instruments will receive Vanilla Bonds in a principal amount equal to the Exchanged Principal Amount per US$1,000 of Ukraine Recovery Instruments no later than [June ] [●], 2027 (the "Exchange Date")[5], and the Ukraine Recovery Instruments shall be cancelled on the Cancellation Date. Ukraine will undertake under the terms of the Ukraine Recovery Instruments to publicly report not later than 40 days after the Exchange Control Variable Test Date whether the Exchange Condition has been met (the "Exchange Condition Reporting Undertaking"). If the Exchange Condition is not met, the right of holders of Ukraine Recovery Instruments to receive new Vanilla Bonds shall lapse and the Ukraine Recovery Instruments shall be cancelled on the Cancellation Date. Ukraine will undertake under the terms of the Ukraine Recovery Instruments to publicly report on an annual basis Ukraine's central government average tax revenues, excluding social security contributions, for fiscal years 2024, 2025 and 2026 to allow the holders of Ukraine Recovery Instruments to assess the evolution of such metric ahead of the Exchange Date (if any) (the "Tax Revenue Reporting Undertaking"). "Exchanged Principal Amount" means a principal amount of Vanilla Bonds in US dollars which holders of Ukraine Recovery Instruments will be entitled to receive on the Exchange Date per US$1,000 of Ukraine Recovery Instruments. Such amount shall be equal to the lower of: ·    1 and ·    the difference between the Average Realized Tax Revenues and the Average IMF Projected Tax Revenues (converted into USD at the exchange rate equal to the UAH / USD average over 2026), multiplied by a coefficient of 1.10 and divided by the aggregate notional amount of the outstanding Ukraine Recovery Instruments, and multiplied by US$1,000, provided that if the Average Realized Tax Revenues is equal or lower than the Average IMF Projected Tax Revenues,  holders of Ukraine Recovery Instruments shall not be entitled to receive any Vanilla Bonds. "Average Realized Tax Revenues" shall mean the arithmetic average of Ukraine's central government tax revenues, excluding social security contributions, for fiscal years 2025 and 2026, denominated in UAH as published by [the IMF or the Ukrainian Tax statistics Authority] on or around [April 2027]. "Average IMF Projected Tax Revenues" means the arithmetic average of Ukraine's projected central government tax revenues (excluding social security contributions) for fiscal years 2025 and 2026, denominated in UAH as included in the baseline forecasts for such years [approved by the IMF Executive Board at the time of the fourth review of the Ukraine EFF on June___, 2024].
Coupon on new Vanilla Bonds	Subject to the satisfaction of the Exchange Control Variable and the Exchange Principal Amount being higher than zero (each as described below) (together, the "Exchange Condition"), the Ukraine Recovery Instruments will be exchanged into Vanilla Bonds which will bear interest of the same coupon rate as Vanilla Bonds from and including the Exchange Date to maturity.
Exchange Control Variable	The Exchange Control Variable shall be met if, when measured on the Exchange Control Variable Test Date, the average of the real GDP at constant prices in UAH as reported in the World Economic Outlook published on or immediately prior to the Exchange Control Variable Test Date ("GDP") for the fiscal year 2025 and projected GDP for the fiscal year 2026 is at least equivalent to 85% of GDP for the year 2021. "Exchange Control Variable Test Date" means April 30, 2027, provided that if World Economic Outlook is not published on or before April 30, 2027 the Exchange Control Variable Test Date shall be adjusted to be the last day in the calendar month of 2027 in which the World Economic Outlook is published.
Cash flows associated with Ukraine Recovery Instruments	There will be no payouts under the Ukraine Recovery Instruments. The Ukraine Recovery Instruments shall only constitute a security of the Issuer that provides the holder with the right to receive Vanilla Bonds upon satisfaction of the aforementioned conditions. The Ukraine Recovery Instruments will not be exchanged for Vanilla Bonds, and there will therefore be no cash flows derived from or associated with the Ukraine Recovery Instruments, unless Ukraine's economic performance exceeds the IMF baseline scenario and the Exchange Condition is satisfied.
Legal protections	Vanilla Bonds will include cross-default provisions that will be triggered by Ukraine's failure to comply with the following obligations in relation to the Ukraine Recovery Instruments (after expiry of grace periods and materiality standards to be agreed): -     compliance with the Tax Revenue Reporting Undertaking; -     compliance with the Exchange Condition Reporting Undertaking; -     delivery of the appropriate amount of new Vanilla Bonds on the Exchange Date in exchange for the Ukraine Recovery Instruments, provided that (a) the Exchange Condition has been met and (b) the Exchange Principal Amount has not been reduced to zero. The Ukraine Recovery Instruments will not have collective action clauses allowing for aggregation with unsecured debt securities of Ukraine, including the Vanilla Bonds issued in the proposed debt exchange. However Vanilla Bonds issued on the Exchange Date will include collective action clauses allowing for aggregation with all such other unsecured debt securities of Ukraine.

Indicative term sheet - Option 2

Principal Amount	Holders will receive US$475 principal amount of Vanilla Bonds for each US$1,000 in principal amount[6] of Eurobonds exchanged and interest accrued as a result of the 2022 restructuring amendments to the terms of the Eurobonds. Each series of Vanilla Bonds will be issued in an aggregate face amount sufficient to ensure adequate liquidity and index eligibility, all of them being benchmark size. The commercial terms of the Vanilla Bonds are designed to meet programme debt-related targets under the current IMF baseline scenario.
Maturities and Principal Amortization	The Vanilla Bonds will mature in 2034, 2035, 2036, 2038, and 2040, bullet repayment at maturity.
Coupon	Interest shall be payable on each series of Vanilla Bonds on a semi-annual basis in arrear, on [December 15 and June 15] of each year until maturity, at the following annual rates for interest payment dates falling in the specified calendar year: H2 2024 -2025: 1.00% 2026-2027: 3.00% 2028 to maturity: 6.00% Interest will accrue from the issue date of each series of Vanilla Bonds to the relevant maturity date, and will first be paid on [December 15], 2024.
Risk Factor related to the Vanilla Bonds	The Exchange Offer Memorandum will include a specific risk factor stipulating that: "The terms of the Vanilla Bonds, including the principal amount, amortization profile, maturity date, and interest rate on each series of Vanilla Bonds, have been calibrated to allow Ukraine to reach the debt sustainability targets set forth in its Extended Fund Facility with the IMF approved on March 31, 2023 ("EFF") under the baseline macroeconomic framework approved by the IMF Executive Board on [June ___, 2024 in its fourth review] of the EFF (the "baseline scenario"). The baseline scenario is subject to significant risks, including those arising from the exceptionally high uncertainty stemming from the war, potential policy slippages and delays or shortfalls in external financing. The IMF Executive Board in its [fourth review] also set forth a downside macroeconomic framework (the "downside scenario"), as required under the IMF's policies for lending "under exceptionally high uncertainty", which takes into account the impact of the realization of certain of these risks. In the event that Ukraine underperforms vis-à-vis the baseline scenario, including but not limited to a circumstance where the IMF's "downside scenario" materializes, a further debt restructuring exercise affecting the Vanilla Bonds will likely be required. Such further treatment of the Vanilla Bonds may include reductions in principal amount, extension of maturities, and/or reduction in the interest rate applicable to each series of Vanilla Bonds, in order to ensure debt sustainability targets in the EFF are achieved under the then-prevailing macroeconomic conditions and outlook. There can be no assurance in these circumstances that Ukraine will be in a position to perform any or all its obligations under the Vanilla Bonds unless or until such further restructuring is implemented."
Language expected to be included in Letter of Intent to the IMF / IMF Memorandum of Economic And Financial Policies of Ukraine	"Our international partners have assured us of their continued support to help ensure that debt sustainability is restored, and the program is fully financed. As part of our efforts to restore debt sustainability we announced on March 24, 2023, the intention to undertake a restructuring of our external public debt, in line with program parameters, and our plan remains to reach agreement with commercial creditors before the end of August 2024. Should the case arise where the macroeconomic and debt outlook worsen, we also commit to undertaking a further external commercial debt treatment as needed to restore debt sustainability in line with program parameters".
[Loss Reinstatement	In March 2023, the Group of creditors of Ukraine ("GCU") agreed to provide an additional official sector debt treatment to contribute to restore debt sustainability of Ukraine upon the earlier to occur of (i) the end of the period of Exceptionally High Uncertainty and (ii) the end of the IMF program in 2027 (the "GCU treatment"). Such additional debt treatment will be provided prior to any further required treatment of the Vanilla Bonds. In the event that application by the GCU of Comparability of Treatment ("CoT") principles at the time of the GCU treatment requires that a further treatment of commercial claims be implemented, then Ukraine has committed to undertake such further debt treatment of commercial claims (the "further debt treatment"). In this circumstance, loss reinstatement provisions embedded in the terms of the Vanilla Bonds shall reinstate the original (pre-2022 restructuring) claim of bondholders plus accrued and unpaid interest thereon up to the date of the further debt treatment less the aggregate amount of interest paid on the Vanilla Bonds up to the date of the further debt treatment, provided that the loss reinstatement provisions shall only be valid in relation to a further debt treatment that is confirmed as necessary based on the GCU treatment and CoT and will expire should no such further debt treatment be required at that time.]
No Warrants related Events of Default	The Vanilla Bonds (unlike certain series of the Eurobonds) will have no events of default related to or referencing the Warrants.
Most-favoured creditor clause	Ukraine shall not enter into any compromise or agreement in respect of commercial debt claims (including the sovereign guaranteed commercial debt of Ukravtodor and Ukrenergo) that would provide to holders of such claims a  material difference in recovery value (to be defined) than that received by holders of Eurobonds participating in the proposed debt exchange without offering substantially similar terms (or other consideration of equivalent value) on a rateable basis to all holders of Vanilla Bonds issued in the proposed Debt Exchange.
[Ad Hoc Creditor Committee adviser's fees	The exchange documentation will provide a mechanism for payment or reimbursement of all reasonable fees, costs and expenses (including legal and financial adviser fees) of the Ad Hoc Creditor Committee on mutually satisfactory terms  and in line with the market standard by way of deduction of such fees from the first coupon payment on the Vanilla Bonds or otherwise.]

Annex B (con't)

Summary of Sovereign Proposal

Annex C

Committee Proposal

Annex D

Adjusted Committee Proposal

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This press release does not constitute an offer of the new securities for sale in the United States, and the new securities (if issued) will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") or the securities laws of any state of the United States and they may not be offered or sold within the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state or local securities laws. This press release does not constitute an offer of the new securities for sale, or the solicitation of an offer to buy any securities, in any state or other jurisdiction in which any offer, solicitation or sale (if made) would be unlawful. Any person considering making an investment decision relating to any securities must inform itself independently based solely on an offering memorandum to be provided to eligible investors in the future in connection with any such securities before taking any such investment decision.

This announcement is directed only to beneficial owners of the Eurobonds who are (A) "qualified institutional buyers" within the meaning of Rule 144A under the Securities Act or (B) outside the United States in offshore transactions in compliance with Regulation S under the Securities Act, that may lawfully participate in the Transaction in compliance with applicable laws of applicable jurisdictions.

No offer of any kind is being made to any beneficial owner of Eurobonds who does not meet the above criteria or any other beneficial owner located in a jurisdiction where the offer would not be permitted by law.

Forward-Looking Statements

All statements in this press release, other than statements of historical fact, are forward-looking statements. These statements are based on expectations and assumptions on the date of this press release and are subject to numerous risks and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. Risks and uncertainties include, but are not limited to, market conditions and factors over which Ukraine has no control. Ukraine assumes no obligation to update these forward-looking statements and does not intend to do so, unless otherwise required by law.

Notice to Investors in the European Economic Area and the United Kingdom

Notice to EEA retail investors.  The announcement contained in this press release is not being directed to any retail investors in the European Economic Area ("EEA") or in the United Kingdom.  As a result, no "offer" of new securities is being made to retail investors in the EEA or in the United Kingdom.

This announcement is only directed to beneficial owners of Eurobonds who are (i) within a Member State of the European Economic Area if they are "qualified investors" as defined in Regulation (EU) 2017/1129 and (ii) within the United Kingdom they are "qualified investors" as defined in Regulation (EU) 2017/1129 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018, as amended ("EUWA").

The new securities are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the EEA. For these purposes, a "retail investor" means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, "MiFID II"); or (ii) a customer within the meaning of Directive (EU) 2016/97 (as amended), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II.

The new securities are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the United Kingdom. For these purposes, a "retail investor" means a person who is one (or more) of: (i) a retail client as defined in point (8) of Article 2 of Regulation (EU) No 2017/565 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018, as amended; and/or (ii) a customer within the meaning of the provisions of the Financial Services and Markets Act 2000 (the "FSMA") and any rules or regulations made under the FSMA to implement Directive (EU) 2016/97, where that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it forms part of UK domestic law by virtue of the EUWA.

Consequently no key information document required by Regulation (EU) No 1286/2014 (as amended, the "EU PRIIPs Regulation") or by Regulation (EU) No 1286/2014 as it forms part of UK domestic law by virtue of the EUWA (as amended, the "UK PRIIPS Regulation") for offering or selling the new securities or otherwise making them available to retail investors in the EEA or the United Kingdom has been prepared and therefore offering or selling the new securities or otherwise making them available to any retail investor in the EEA or the United Kingdom may be unlawful under the EU PRIIPs Regulation and the UK PRIIPs Regulation.

United Kingdom

For the purposes of section 21 of the Financial Services and Markets Act 2000, to the extent that this announcement constitutes an invitation or inducement to engage in investment activity, such communication falls within Article 34 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), being a non-real time communication communicated by and relating only to controlled investments issued, or to be issued, by Ukraine.

Other than with respect to distributions by Ukraine, this announcement is for distribution only to persons who (i) are outside the United Kingdom, (ii) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Promotion Order, (iii) are persons falling within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as "relevant persons"). This announcement is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which the announcement relates is available only to relevant persons and will be engaged in only with relevant persons.

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[1] The treatment of Eurobonds issued by Ukrenergo and Ukravtodor and guaranteed by Ukraine to be discussed.

[2] The Euro/USD conversion of the principal amount of the Euro-denominated Existing Bonds will be done based on average in the month preceding completion of the debt treatment closing.

[3] These securities will either be new bond series that will have the same commercial terms as the Vanilla Bonds or fungible tap issuances of the relevant series of Vanilla Bonds.

[4] Date to be confirmed

[5] Date to be confirmed

[6] The Euro/USD conversion of the principal amount of the Euro-denominated Existing Bonds will be done based on average in the month preceding completion of the debt treatment closing.

 

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