Ukraine is fully prepared for court battle over USD 3 bln, MinFin says

Ukrainian government “is fully prepared vigorously to defend its interests in respect of the December 2015 Eurobonds”, Finance Ministry commented on its website on Feb. 18. A day before, Russian Finance Minister reported it had filed a lawsuit to High Court of London to claim the USD 3 bln Eurobond which was due on Dec. 20, 2015.

In his comment to Ukrinform new agency, Ukrainian Foreign Affairs Minister Pavlo Klimkin shed some light on Ukraine’s possible strategy in the court. Ukraine will try “to prove that it was a bribe in form and content’, he said on Feb. 18.

Recall, the USD 3 bln Eurobond was fully bought by a Russian state-run fund in December 2013, following announcement of president Putin that it would grant USD 15 bln loans to the government of then-president Viktor Yanukovych. Before the deal, Yanukovych refused to sign an association agreement with European Union.

Alexander Paraschiy: We noticed that in its statements regarding “Russian” debt (including the last statement), Ukrainian MinFin calls it “Eurobond”. From such wording, we conclude that Ukrainian side is preparing to defend a bit different position than was announced by Klimkin. In particular, we expect MinFin will stress that this loan is nothing but a regular Eurobond, whose holder(s) have the same rights and deserve the same treatment as the holders of other sovereign Eurobonds of Ukraine. Recall, Russian official position is – this loan is “official”, provided by a Russian fund “on behalf of Russian government”. If Russian side is able to prove this in London court, it could grant a right to demand better restructuring terms, as compared to what Ukraine successfully agreed with other holders of its Eurobonds last year.

Recall, the IMF board recognized this loan as “official” on Dec. 16. Though, IMF’s classification of this debt was only made for the purpose of its internal policies, and thus there is a chance that London court will made other conclusion. In our view, the IMF’s decision was ill-grounded.