Russian PM mentions acceleration of USD 3 bln Ukraine debt payment

The Russian government has grounds to demand the acceleration of a repayment of a USD 3 bln, two-year loan that it provided in December 2013, PM Dmitry Medvedev said on Jan. 14, as cited by the Interfax news agency. He nearly repeated the words of Finance Minister Anton Siluanov made on Jan. 10 by stating “we do not see in the adopted budget of our neighbors money to fulfill financial obligations to Russia, though Kyiv has planned repayments to other creditors”. At the same time, Ukrainian Finance Minister Natalie Yaresko expressed her hope that Russia won’t demand any acceleration, the UNIAN news agency reported on Jan. 13.

Alexander Paraschiy: By “not noticing” money to repay debt to Russia in Ukraine’s 2015 budget, Siluanov seems to have misinformed his boss. In the recently published addendum to the 2015 state budget (as well as in a draft budget addendum), Ukraine has explicitly earmarked USD 5.7 bln for repayment of its international debt obligations. And although the word “Russia” isn’t in the document, it’s clear that this planned number contains the USD 3.0 bln repayment of a Russian loan (the other repayments are about USD 1.5 bln to the IMF and about USD 1.2 bln in two Eurobond tranches).

However, Russia might indeed demand early repayment of a USD 3 bln debt by Ukraine. For sure, its government has a legal basis for that, given that Ukraine has breached its 60% government debt-to-GDP covenant. And it seems that by repeating their right to demand the acceleration, Russian officials want the public to forget the words of President Putin accessible on his website that Russia won’t demand early repayment, even though the debt covenant had been breached by Ukraine.

So, now the Russia’s demand of early repayment looks even more likely, and the core question is its timing. Our understanding of the issue is that Russia will only be able to demand acceleration after Ukraine officially publishes its nominal GDP data for the full year 2014. We base this notion on the fact that the debt issue memorandum stipulates that state debt should not exceed 60% of “the annual nominal gross domestic product of Ukraine”.

These metrics are not explicitly defined in the document. But another reference of the “annual nominal GDP” in the document mentions the calendar year. The reporting of official GDP stats for 2014 is scheduled to happen around March 11, and we hope that by that time the Ukrainian government will secure some financing from the IMF and other Western lenders to be able to repay Russian debt smoothly, more or less.