No default in Ukraine, vows Yatsenyuk, despite Russian 'jail bonds'

By bne IntelliNews September 25, 2014

bne -



Ukraine's prime minister Arseny Yatsenyuk said the country will not default and has all the resources needed to service its debt, including eurobonds issued to the Russian Federation in December 2013 under controversial terms.

“We strongly believe and we are confident that Ukraine will not default," Yatsenyuk said at the the Council of Foreign Relations in New York on September 25, according to Interfax.

"The former government had a number of deals with the Russian Federation, and these deals are and were not fair,” Yatsenyuk said. “They were more political, but you know Russians, they are not idiots. They usually try to facilitate a number of hooks in every deal…”

The key deal Yatsenyuk was referring to is the $3bn eurobond Russia bought from  Ukraine in December 2014, as part of a support package provided  in return for Ukraine not signing an Association Agreement with the EU in November 2013.

Critics have named these bonds “jail bonds” because of  the strings attached, in the form of cross-default clauses in the eurobond covenant stipulating that Ukraine's total sovereign debt not exceed 60% of GDP. The bonds mature in December 2015.

"Total state debt and state-guaranteed debt should not at any time exceed an amount equal to 60% of the annual nominal gross domestic product (GDP) of Ukraine," the covenant reads.

Underscoring Ukraine's fury at the hidden strings attached to the bond, Ukraine's state security service SBU announced criminal charges against former finance minister Yury Kolobev. According to the SBU, Kolobov “illegally transferred” $450,000 to Russian state-owned investment bank VTB Capital as a fee for  selling the bonds, newswires report. The move could be a precursor to Ukraine moving in court against the terms of the covenant as so-called 'odious debt,' incurred by a previous regime against the interests of the state.

With Ukraine's GDP collapsing,  large new foreign loans from the International Monetary Fund, and a slide in the exchange rate causing foreign debt to soar, many believe it is inevitable that Ukraine will breach the 60% GDP limit.

Commerzbank analysts believe that limit was already breached when the currency hit UAH13 to the dollar. The IMF forsees Ukraine's debt-to-GDP reaching 67% by the end of 2014.

"There is little doubt the ratio will be crossed," said Standard Bank analyst Tim Ash in a research note. "Russia will likely use this issue to make life very difficult for Ukraine." According to Ash, the officially binding calculation of Ukraine's debt-to-GDP ratio can however only be made in March 2015 when national accounts for 2014 are published. 

According to Ash, Ukraine's Finance Minister Oleksander Shlapak told Ukraine's banking summit in Lviv that he expects Moscow to demand early repayment of the $3bn bond, causing Kyiv to draw it down from its IMF funds. 

Apart from the Russian-held eurobonds, however, 40% of Ukraine's foreign debt is believed to be held by US fund Franklin Templeton, according to Reuters, which could make debt restructuring nearer December 2015 easier for Ukraine – and increase Russia's incentive to demand early repayment sooner. 

Speaking in New York, Yatsenyuk called for a new IMF programme to take account of the impact of the war in East Ukraine – and possibly make it easier for Ukraine to pay back the Russian 'jail bonds'.

"Probably we do understand that we have to re-adjust the programme, because when we started the program with the IMF, it was a peace program,” Yatseynuk said, according to wires. “For today, this is the wartime government and wartime programme,” he added.

Related Articles

Austria's Erste rides CEE recovery to swing to profit in Jan-Sep

bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more

EU, US partly suspend Belarus sanctions for four months

bne IntelliNews - The Council of the European Union (EU) has suspended for four months the asset ... more

bne:Chart - CEE/CIS countries perform particularly well in World Bank's "Doing Business 2016" survey

Henry Kirby in London - Central and Eastern Europe and the Commonwealth of Independent States’ (CEE/CIS) countries performed particularly well in the World ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.