U.K. court completes appellate hearing on Ukraine USD 3 bln debt

The English Court of Appeal completed last week its
hearing of Ukraine’s appeal against the Mrch 2017 ruling of the High English
Court, which ordered Ukraine to repay its USD 3 bln debt to a Russian state
fund. In their press releases on the hearing, the Russian and Ukrainian finance
ministries published their views on Jan. 26 expressing different conclusions.
Ukraine’s MinFin stated its side “conveyed strong legal arguments” against a
need to repay the debt, which prompted the judges “to reserve judgment until a
later date.” The Ukrainian side “failed to bring any new arguments against the
validity of Russia’s claims,” the Russian MinFin wrote, adding that the final
ruling on the case will be made “in coming months.”

Recall, one of Russia’s state funds, the holder of USD
3 bln in Ukrainian Eurobonds, was the only holdout in Ukraine’s sovereign notes
restructuring convened in 2015. The notes held by the Russian fund, issued in
Dec. 2013 and due in Dec. 2015 (also known as “the Yanukovych debt”), remain outstanding
as Ukraine’s parliament introduced a moratorium on their repayment. After a
hearing in mid-January 2017 the High English Court ruled on March 29, 2017 that Ukraine
has no arguments to avoid repayment of this debt. Later on, the court allowed
the Ukrainian side to file an appeal.

Alexander Paraschiy: Most
likely, we will have an ultimate decision on this case in March-April and it
won’t be in Ukraine’s favor. At the same time, we are sure Ukraine won’t pay
this debt and there will be no consequences of such non-payment. The
non-payment won’t trigger any cross-default on other Ukrainian debt. Ukraine
will continue to argue that any payment on this debt will breach its
commitments under IMF’s EFF program (which assumes no principal payments under
any Eurobonds by end-2018) as well as its commitments to other Eurobonds
holders who agreed to debt restructuring in 2015 (this restructuring deal
contains the Most Favored Creditor clause, assuming that the holdouts can’t get
repayments with better NPV.) Finally, Ukraine’s parliament won’t accept
removing the moratorium on repayment of debt to the Russian side, for political
reasons.

That said, we expect Ukraine (if loses the case)
will postpone the repayment of the debt up until it gets a ruling from
international courts on Russia’s compensation of damages to Ukraine from its
aggression in Crimea and Donbas.