Alexander Paraschiy
Head of Research
[email protected]
+38 044 391 55 77

To spite your face: What will get Russia abandoning restructuring

The only participant missed the regular meeting of creditors in London today - the Russian National Welfare Fund, owner of $ 3 billion debt securities, known as the financial assistance to Yanukovych, paid for Ukraine’s refusal to sign the EU Association Agreement. It was the last chance to adopt the terms of exchange, which were approved by other creditors.

What did Russia count on by missing an event? For sure, not on the money. Is that Russia want to create a news hook saying that Ukraine behaves "not in a fraternal way."

As we know from the statement of the Russian Finance Minister Anton Siluanov, the Russian Ministry of Finance has already “allocated” three billion dollars from the Ukraine to their planned revenues. And if his desire to receive these funds in the next year were sincere, then the only way to carry it out would be to exchange for new marketable bonds and derivatives. Thus, they would have received up to 90% funds allocated to the budget. No other alternative offers such completeness or a debt recovery rate.

It is impossible to sell Yanukovych bonds in the market - these securities have their own special features. Obviously, their market price will be significantly lower than the $ 3 billion. Securities that will receive Templeton and other stakeholders of the debt operation would be much easier to sell.

Any action in the international courts, obviously, would not secure easy and quick repayment of debts. First, the Ukrainian Government has already broadcasted to the world that it would not offer better restructuring terms to those who did not support the debt transaction. Moreover, in view of possible geopolitical counter-claims from Ukraine, an attempt to return $ 3 billion debt to the treasury of the Russian State Fund does not look very promising.

Appealing to the International Monetary Fund with the requirement to recognize the debt as a presently payable according to the IMF policy, too, can come to nothing, as recently Anton Siluanov has informed Putin personally.

Appealing to the international investment community, which supported Ukraine in its debt transaction, too, will not lead to the desired result. The Ukrainian Government and its consultants did their best to prevent any impact on the Ukraine’s credit rating from non-payment of the Russian debt - and the recent statement by a reputable rating agency Standard & Poor "s confirms it. Taking the first step to solve the Ukrainian debt problem, Russia could in deed and not in name confirm its "genuine" desire to help "the fraternal people” in the hour of need. In mind of the Russian ordinary guy, voluntary debt relief would become another argument in favor of Ukraine’s dependency of Russia. Accordingly, the Ukrainian Government improves its image.

The idea that Ukraine could recognize the "Yanukovych’ debt" to the predatory regime finds no support among the Ukrainian people and the majority of politicians. And if the Russian party had approved the debt restructuring plan, Ukraine would have ranked it on equal terms with the debt to other international creditors. That is, the securities issued in exchange for a $ 3 billion from Putin, would have been exchanged for new ones, similar to those received by international funds. The actual legalization of the Russian debt would have caused quite justified storm of discontent among the radical and populist opposition. Now Ukraine has won the right not to pay at all - chances that Ukraine will repay the debt in the next year or two are slim to none.

In general, the National Welfare Fund, having listened to political arguments of its President and the Government and not appeared in London, made a real present to the Ukrainian government.