U.K. court to rule on Ukraine USD 3 bln debt appeal on Sept. 14

The English Court of Appeal will announce on Sept. 14
its ruling on the Ukrainian Finance Ministry’s appeal of a USD 3 bln debt to a
Russian state fund, the Interfax news agency reported on Aug. 30, citing the
court’s announcement.

Recall, a Russian fund is demanding that Ukraine repay
in full USD 3 bln in Eurobonds issued in December 2013 (the so-called
“Yanukovych debt” with a two-year maturity). The fund was the only holdout of
Ukraine’s Eurobond restructuring in autumn 2015, when USD 15 bln in notes were
restructured with payment postponed for four years, on average.

The Russian fund demanded the bond’s repayment in an
English court, which ruled in March 2017 that Ukraine had no argumentsto avoid the repayment. The court allowed the Ukrainian side to appeal, a
hearing took place in January 2018. 

Alexander Paraschiy: It’s very
unlikely that Ukraine’s appeal will be successful. Although Ukraine will have
no choice but to respect the court’s ruling, it’s clear that MinFin won’t act
to repay the debt. That’s because Ukraine’s parliament introduced a moratorium on the servicing and repayment of
this debt in April 2016, and there is no chance to
lift it, for political reasons.

As we’ve written before, we see the only way for the
Russian fund to recover anything soon from its “Yanukovych bonds” is to sell
them to Gazprom, which will use the bonds to “pay” Ukraine’s state holding
Naftogaz USD 2.6 bln. Gazprom lost net USD 2.6 bln in litigations against
Naftogaz in winter 2017-2018, but is clearly not willing to pay with any liquid
asset. It will be hard for Naftogaz to reject this “payment.” As we
highlighted above, the Ukrainian government will have to recognize this
obligation once the UK court requires its payment.

Alternatively, the overdue “Yanukoych debt” can be
partially reconciled with Russia’s possible obligations to Ukraine for
inflicting economic damages related to the illegal occupation of the Crimean
peninsula and Donbas after Ukraine pursues these claims in international
courts.