Russia won’t demand acceleration of USD 3 bln loan granted to Ukraine

The Russian government will not demand an early repayment of a USD 3 bln loan it granted to Ukraine if Ukraine’s state debt/GDP ratio will exceed 60%, Russian President Vladimir Putin told Gernam ARD channel on Nov. 15. “We have already made the decision – we will not do it. We do not want to complicate the situation,” Putin said. Russia provided a USD 3 bln, two-year loan to Ukraine in December 2013 in the form of Eurobonds with a covenant that gives the lender an option to demand acceleration once Ukraine’s state debt-to-GDP ratio exceeds 60%. The ratio reached nearly 64% as of end-September, we estimate.

Alexander Paraschiy: Putin’s words add some confidence that the “no acceleration” scenario is the base case. Russia is milking all the good PR it can get from its apparent good will gesture in “easing pressure” on the Ukrainian economy. On top of that, Russia will avoid a discussion on who is responsible for the deterioration of Ukraine’s debt/GDP ratio. Clearly, with Ukraine’s gross international reserves to fall below USD 10 bln, the nation won’t be able to repay the Russian loan in the short-term, without international support.

We also believe it’s to the Russian government’s advantage (economically and politically) to pursue a long-term strategy of disintegrating the Ukrainian state, rather than attempting to provoke an overnight economic collapse, which would draw a sharp reaction from the Ukrainian public, as well as the West. Kremlin strategists want to prove the Ukrainian state is not viable on its own, rather than carrying the direct responsibility for the Ukrainian state’s demise, or giving the appearance as though it’s responsible.