UK Supreme Court hears Ukraine position on USD 3 bln Yanukovych debt

Ukraine presented on Nov. 11 its position to the UK
Supreme Court on the so-called Yanukovych debt (USD 3 bln in 2Y Eurobonds
issued in December 2013), Finance Ministry reported the same day. “Ukraine has
always contended that, as a result of Russia’s preceding threats and acts of
both economic and military aggression, it was left with no choice and
ultimately coerced by Russia into entering the contracts for the bonds,” MinFin
commented. “Either the bonds should be set aside by the Court for duress … or
the legal proceedings should be stayed … if the English Court considers it
cannot … proceed to hear Ukraine’s defence,” MinFin stated. It provided no
timing of a possible ruling of the Supreme Court. “Ukraine remains confident of
a positive outcome in the proceedings, which are brought as part of a broader
strategy of aggression against Ukraine that continues to be waged by Russia to
this day,” MinFin wrote.

Recall, Ukraine issued a two-year USD 3 bln Eurobond
in December 2013 that was purchased solely by a Russian state fund. The issue
was a part of a promise by Russian President Putin to lend Ukraine USD 15 bln
(USD 3 bln each quarter, while in fact, only the initial tranche had been
provided). The debt was provided to help the country resolve the deficit of
dollar liquidity, as other financing sources became impossible at that time
because Ukraine had lost its Western support after then-president Yanukovych had
declined to sign an Association Agreement with the EU a month before. In 2015,
the Russian side declined to enter into a restructuring of this debt, while
Ukraine managed to restructure all the other Eurobond issues for USD 15 bln.

The Russian side initiated a lawsuit in the UK to
force Ukraine into repaying the debt in 2016. In March 2017, the High Court of
London rejected all four defense arguments
of Ukraine and allowed the Ukrainian side to appeal. In September 2018, the Court of Appeal in London ruled
that one Ukrainian argument (the duress argument) was rejected wrongly by the first-tier
court, and the case was later directed to the UK Supreme Court.

Alexander Paraschiy: Our
base-case scenario on this issue is that the Supreme Court will confirm the
position of the appellate court, which will make the Russian side try a new lawsuit
at a full trial procedure. That said, we see a low likelihood that Ukraine will
have to repay the USD 3 bln debt to the Russian side in the foreseeable future.