Ukraine won’t have to pay immediately USD 3 bln “Yanukovych debt”

The Court of Appeal in London ruled on Sept. 14 in
favor of Ukraine’s Finance Ministry that was sued by a Russian state fund
demanding repayment of USD 3 bln in Eurobonds. The court overturned a March
2017 English court ruling rejecting Ukraine’s arguments against making the debt
repayment. In particular, after all four defense arguments provided by the
Ukrainian side were rejected by the first-tier court, the Court of Appeal ruled
that one argument was rejected wrongly. This is the “duress” argument, or that
Russia in essence forced Ukraine to take the loan. That means Russia’s debt
claim should be considered by an English court in full trial, not in short
trial as insisted by Russia.

“There will be no judgment entered against Ukraine by
the Court of Appeal, which has decided that the case on duress should go to a
full public trial,” Ukraine’s MinFin commented the same day. “The unanimous
findings of the Court of Appeal mean that Ukraine will have the full
opportunity to prove at trial its longheld position that the contracts for the
USD 3 billion Eurobonds are invalid and unenforceable,” Ukraine’s Finance
Minister Oksana Markarova commented.

In turn, the Russian side filed an appeal against the
ruling in the UK Supreme Court.

Recall, Ukraine issued a two-year USD 3 bln Eurobond
in December 2013 that was fully purchased by a Russian state fund. The issue
was a part of a promise by Russian President Putin to lend Ukraine USD 15 bln
as the country approached a dollar liquidity deficit and lost its Western
support after then-president Yanukovych declined to sign an Association
Agreement with the EU in November 2013. In mid-2015, the Ukrainian government
initiated restructuring of all USD 18 bln of its then-outstanding sovereign
Eurobonds and succeeded in reaching a restructuring agreement with all its
creditors but the Russian fund.

The Russian position at that time was that its USD 3
bln bond should have preferable treatment as it should be considered as
official debt of Ukraine, unlike other Eurobond issues. In April 2016, the
Ukrainian parliament introduced a moratorium for the “Yanukovych debt”
repayment for an indefinite time.

Alexander Paraschiy: This is a
positive surprise for Ukraine, given that all its defense arguments were fully
rejected by the first-tier court. At least, this means Ukraine will have
another couple of years to postpone the repayment. It also gained the chance to
avoid it or reconcile it with Ukraine’s claims against Russia for damages
related to Russian aggression in Crimea and eastern Ukraine.

For the short term, the event has no material impact
on Ukraine’s finances as it was clear the government was not going to pay the
bill soon. However, the ruling is very positive for Ukraine’s image. More
importantly, the interim victory removes short-term risks related to Ukraine’s
cooperation with the IMF, which cannot provide loans to countries in default on
official debt that are doing nothing to resolve their debt problems.