Russia to sue Ukraine over $3bn bond after December 31

By bne IntelliNews December 21, 2015

Russia has given Ukraine an ultimatum to pay it's $3bn Eurobond by the New Year or be sued, after Kyiv defaulted on the note that was due for redemption on December 20.

"If Ukraine does not repay the $3bn debt by December 31, Russia will file a lawsuit against it in order to get these funds forcibly," Russia's Finance Minister Anton Siluanov said, after Ukrainian Prime Minister announced his country's default on the bond already on December 18.

Siluanov's deputy Sergei Storchak argued that to his mind in court "everything will look simple", expressing confidence that Ukraine doesn't stand a chance in a UK-based legal battle once the fact of it breaching the bond's covenants is established.

However, some commentators question Russia's chances of winning in court, arguing that Ukaine has a strong case for claiming economic damage from Crimea's annexation by Moscow in March 2014.

Ukraine as expected reneged on the repayment after the International Monetary Fund (IMF) announced earlier in December that it recognised the Ukrainian bond as official rather than commercial debt, and changed its policy to allow it to keep lending to states that are in arrears on official debts. This cleared the way for Ukraine to refuse to repay the bond, which was issued in 2013 by the government of former Ukrainian president Viktor Yanukovych.

Ukrainian Finance Minister Natalie Jaresko told Bloomberg TV on December 18 that she still hoped an agreement could be reached with Russia before the matter goes to court.

But analysts are skeptical there can be much scope now for a settlement. There is "no chance that Ukraine and Russia will find any common ground beyond the courts", believes Alexander Paraschiy at the Concorde Capital brokerage in Kyiv.

"Meanwhile, the only thing that's important for Ukraine is that the IMF will continue to treat the government as 'making good faith efforts' to resolve the debt issue, and therefore, continue lending to Ukraine," the expert added in a note to clients on December 21.

Moscow's recent comments that Kyiv failed to approach it as an official creditor to resolve the issue is clearly directed at undermining this, he added. "Ukraine has not done that so far, which does not necessarily mean the IMF won't treat Ukraine as if it’s "making good faith efforts" (that’s clearly subjective criteria). But such a risk exists, especially if Russia submits an appeal to the IMF," Paraschiy wrote.

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