Ukraine, Russia remain on their own in settling USD 3 bln debt

Ukrainian Finance Minister Natalie Jaresko said she is ready to continue her dialogue on restructuring USD 3 bln in Eurobonds with Russian Finance Minister Anton Siluanov, Bloomberg reported on Nov. 10.  “I’ll hopefully meet with my counterpart again after the G-20 meeting,” Jaresko said, referring to the meeting in Turkey on Nov. 15-16. She also stressed that Ukraine has no legal right to offer any better conditions to the Russian bondholder, as compared to the holders of USD 15 bln in bonds that earlier agreed to restructuring. “Since Russia missed the deadline for joining the deal, Ukraine can offer everything except the GDP warrants,” Jaresko said. Recall, the Russian holder of the Ukrainian Eurobond maturing on Dec. 20 ignored two meetings in October called to approve the bond restructuring.

The same day, Russian Deputy Finance Minister Sergei Storchak said “the alternatives are, so far, either court or timely payment” in resolving the debt, as reported by the Interfax news agency. He stressed that court hearings over the USD 3 bln debt may prevent Ukraine from returning to the international debt markets. “For a lot of institutional investors, internal rules do not allow for dealing with a borrower that has liabilities in default,” he said. “Ukraine cannot rely on IFI lending all its life.”

Alexander Paraschiy: The above statements illustrate just how far the two sides are from solving the debt issue. It does not look possible that the meeting in Turkey will resolve it. The scenario of a court battle looks the most realistic. The likely scenario in this case is Ukraine will try to match Russia’s claims with its counter-claims on economic losses related to the Russian occupation of Crimea and easternmost Ukraine. As earlier stated by the Standard & Poor’s ratings agency, Ukraine’s failure to repay the USD 3 bln debt to Russia won’t necessarily lead to its credit rating downgrade. Therefore, we believe non-payment of the debt will not necessarily prevent Ukraine from re-entering the international debt markets.