Poroshenko calls Russian loan a bribe, wants it on par with other bonds

Ukrainian President Petro Poroshenko called the two-year USD 3 bln loan that was provided to Ukraine by the Russian National Welfare Fund in December 2013 a bribe to his predecessor, Viktor Yanukovych, according to an interview with Bloomberg television published on June 15.  “My personal [view] is that that was a bribe,” Poroshenko said, recalling that Ukraine declined to sign an Association Agreement with the EU just a couple of days before this loan was provided. He also said that “Ukraine will demonstrate responsible behavior” and accepted that the loan is the responsibility of the Ukrainian government. “The responsibility of Russia, either in these three billion, or others, should be a payment for the aggression against us, should be discussed on the highest level,” he added.

“We are still having a discussion on whether this is a commercial Eurobond or a state loan,” Porosheko said, “If it is a commercial Eurobond, it should be treated on par with other Eurobonds.” On the question of whether the USD 75 mln coupon on this bond (due on June 20) will be paid, Poroshenko said that “the government should make a responsible decision,” recalling that he signed a law that created the conditions for the government to decide on whether or not to service state Eurobonds. Poroshenko also called the current negotiations with all private creditors on debt restructuring as one of the key issues for successful reforms in Ukraine.

Porosheko’s statements triggered a prompt reaction from Russia, with the presidential spokesman Dmitry Peskov demanding that Ukraine clarify whether or not it confirms “its international obligations,” including those to Russia.

Alexander Paraschiy: With his statement, Porosheko has allowed the government decide on whether or not to service the Russian debt, and it has less than a week for that decision. It won’t be an easy one, given that failure to repay the coupon next week might trigger a response from the Russian government, particularly in the energy sphere, as the Russian government is to decide on the last week of the quarter on offering a 30% discount for its gas to be supplied to Ukraine in 3Q15 (which would save Ukraine about USD 86 per tcm of gas, or about USD 0.5 bln, in the quarter). Yet at the same time, a smooth repayment of the coupon might give the wrong signal to bondholders across the board.

We believe the Ukrainian government will have the possibility to postpone the Russian debt coupon payment without being accused of political bias, in case it starts the series of delays with a USD 39 mln coupon payment (on its 2016 Eurobond) that is scheduled for June 17.