Putin ready to reschedule Ukraine’s USD 3 bln debt for three years

Russian President Putin told a summit in Turkey on Nov. 16 that his country is ready to restructure Ukraine’s USD 3 bln Eurobond due on Dec. 20, Interfax reported. He proposed that Ukraine repay USD 1 bln in each of the three next years, stating that those are better conditions than what the IMF had requested from the Russian side. “We were asked to postpone the repayment until the next year,” Putin said.

Putin said he discussed the possibility of the U.S, the EU or an IFI providing a guarantee on the debt repayments, adding that he hopes this issue will be resolved by early December. Ukraine’s MinFin spokesman stated the same day that the Ukrainian side got no offers from Russia, Interfax-Ukraine reported. The IMF didn’t comment on Putin’s claim.

Recall, the USD 3 bln Eurobond, owned by a Russian state fund, was included into the perimeter of Ukraine’s operation to restructuring USD 18 bln in debt maturing in 2015-2023. In October 2015, the holders of USD 15 bln in Eurobonds agreed to restructure the debt, on the condition that holdouts won’t receive any better restructuring offer. The only holdout was the Russian fund, whom the Russian government treats as an official lender to Ukraine. 

Alexander Paraschiy: Putin’s announcement marks a real breakthrough in the position of Russia, whose officials declared on the eve of the summit that they ruled out the restructuring option. The statement was unexpected, as was the IMF’s alleged request to postpone the total payment of Ukraine’s debt until next year.

Indeed the IMF’s alleged offer to Putin lacks logic, in our view, as it contradicts the liquidity goal that was set by Ukraine’s debt operation, actively supported by the Fund. Moreover, Putin’s offer is not acceptable for Ukraine under the rules of the debt operation, which forbids better terms to holdouts. However, this offer is possible to arrange in other formats, e.g. if the IMF declares that Russian debt is “official debt.” It’s also possible that there is some other agreement between Russia and the IMF (and/or the U.S. and/or the EU) that they will provide some financial assistance to Ukraine to enable repaying the bond to Russia.

We still believe the scenario of Ukraine’s non-payment of the USD 3 bln debt in December and a resulting court battle is the base case. However, the possibility of a gradual repayment, with the assistance of Ukraine’s Western partners, also looks possible. It’s also possible that the Russian side will agree on deeper restructuring terms.