Ukraine discussing 3 bln debt with Moscow via German intermediaries

The Ukrainian government is engaged in a daily dialogue with its Russian counterparts on resolving the conflict over the owed USD 3 bln Eurobond with the mediation of the German finance ministry, Ukrainian Finance Minister Natalie Jaresko told journalists on Dec. 15, as reported by the UNIAN news agency. “We are in contact with them through our German partners every day,” she said, describing them as an intermediary.

Recall, the USD 3 bln Eurobond, held by a Russian state fund, matures on Dec. 20. The fund declined to participate in votes for the bond restructuring as Russian officials claim that this debt should be treated separately from the other USD 15 bln in Eurobonds that were successfully restructured in fall 2015. The Russian side claims this bond should be treated as official debt of Ukraine, while the Ukrainian side insists on its commercial status.

Alexander Paraschiy: Such talks are reminiscent of the “hybrid” trilateral Minsk negotiations on resolving the Russian “hybrid” war in Donbas, which have brought few tangible results. The worrying fact is that these negotiations are being conducted through intermediaries other than MinFin’s official advisor on the debt operation, which means MinFin is already treating the Russians differently than its other bondholders (even possibly having surrendered its position that the so-called “Yanukovych debt” is non-official). At the same time, we understand Ukraine’s position, which is that MinFin should be ready for any outcome on the status of this debt. For instance, in case the IMF board decides to recognize this debt as official, for the purpose of ensuring that it will continue lending to Ukraine, MinFin will have to prove it was doing all its best (“making good faith”) to resolve the debt issue. In any case, we continue to expect that Ukraine won’t repay this debt when it’s due, as well as expect that the IMF board won’t recognize this debt as official.