Ukraine confirms intention to defend against Russia USD 3 bln debt claim

The Ukranian government filed on March 3 an acknowledgement with an English High Court “indicating its intention to defend against all of the claim brought against it by The Law Debenture Trust Corporation related to the alleged Russian debt,” the Finance Ministry reported the same day. “Ukraine reconfirms its previously stated intention to vigorously defend against the claim,” the MinFin statement said.

Recall, the Russian government filed a lawsuit against Ukraine in the High Court of London on Feb. 17, demanding the repayment of USD 3 bln in overdue debt. The debt was provided by a Russian state fund in December 2013 in the form of a purchase of USD 3 bln in two-year Ukrainian government Eurobonds. The fund refused to take part in Ukraine’s debt operation that restructured all the other Eurobonds of the Ukrainian government in November 2015. In December, Ukraine declared a moratorium on the repayment of the “Russian” Eurobond and its USD 75 mln coupon.

Alexander Paraschiy: The court hearings over the “Russian debt” could take more than one year, we expect, and it’s too early to forecast its result. What’s important for Ukraine now is how this process will affect Ukraine’s cooperation with the IMF.

Recall, the IMF ruled in December to allow continued lending to Ukraine, even if it’s in default on official obligations (which is the “Russian debt,” based on the IMF’s conclusion). However, for the lending program to go on, Ukraine should behave with good faith efforts with the Russian side to resolve the debt issue. According to IMF spokesman Gerry Rice yesterday, the IMF board will assess those efforts at the time of the review. He also stressed that the IMF is encouraging both sides “to achieve a cooperative solution that contributes to the financing and the debt objectives” of Ukraine’s program with the IMF. This enables us to expect that the IMF will be cooperative with Ukraine and will close its eyes on some deviations from “good faith efforts” on the debt issue, providing Ukraine completes all the other commitments needed to get a new IMF tranche.