Russia warns Ukraine on possible acceleration of USD 3 bln debt

The Ukrainian government has breached its covenants stipulated in a two-year, USD 3 bln debt agreement signed in December 2013, Russian Finance Minister Anton Siluanov told a Jan. 10 press conference, as reported by the Interfax news agency. He cited the 0.6x state debt/GDP cap that Ukraine has breached. “Therefore, Russia indeed has all the grounds to demand the acceleration of this loan,” he said. “At the same time, a decision has not been reached at the moment.”

He also expressed his surprise at the “fact” that Ukraine’s state budget (for 2015) does not foresee repayment of this loan (maturing on Dec. 20), while “liabilities to other lenders, the IMF in particular, are being fulfilled and will be fulfilled by Ukraine”.

Interfax also cited an anonymous source in the Russian government who stated that “the situation in Ukraine’s economy suggests that the series of parameters that were the conditions for providing the bond debt to Ukraine have been breached”, so “Russia will have to demand acceleration of the USD 3 bln loan in the nearest future.” 

Alexander Paraschiy: Russia’s apparent intention to accelerate repayment of the USD 3 bln loan deeply contrasts with Putin’s comments on the loan made on Nov. 15, 2014, when he made it clear that Russia won’t demand the early repayment. So our confidence in the “no acceleration” scenario should be much less now. For sure, the demand to repay this loan soon, if filed officially, would be hard for the Ukrainian government to fulfill due to the current constraints of USD liquidity. However in the grand scheme of things, it changes little for Ukraine, given that the government has to reserve USD 3 bln for this loan’s repayment, regardless of whether it’s in February or December. 

We also do not rule out other scenarios, such as Ukraine declining to repay the loan to an aggressor-state, or deciding to link its repayment to Russia’s compensation for damages related to its occupation of Crimea. However, we see such scenarios as hard to implement, technically.

Meanwhile, we are startled by Siluanov’s words that Ukraine’s budget does not foresee any repayment of a Russian loan. Firstly, Ukraine has not yet made public its newest numerical addenda to the law on the 2015 state budget, in which one would be able to find plans for state debt repayment.

Secondly, the latest available draft of the addenda (released on Dec. 23) foresees the repayment of external state debt in the amount of about USD 5.7 bln, and this number does include the repayment of the USD 3 bln loan, as well as other external sovereign debt, based on our calculations. On top of that, Siluanov is well aware that Ukraine is fully servicing the Russian loan (it paid USD 75 mln interest on the loan just three weeks ago), as well as its debt to the IMF and other creditors.