Russia is still awaiting Ukraine's reaction on restructuring of a Russia-held $3bn Eurobond proposed in November by President Vladimir Putin, officials in Moscow said, raising the spectre of a new round of conflict between the neighbours when the bond falls due on December 20.

Bilateral negotiations on the debt are also frozen ahead of a watershed on December 8, when the International Monetary Fund (IMF), Ukraine's main creditor, will vote on changes to its lending policy in order to avert derailment of Ukraine aid by Russia. Currently, IMF policy prohibits it from lending to countries that are in arrears to other governments.

"The work continues, there is no progress," Russian Deputy Finance Minister Sergei Storchak said on December 1, Reuters reported. "We would like to agree with Ukraine before the changes [by the IMF in its lending policy] are made."

Moscow is interested in securing a restructuring deal with Kyiv before this date in order to avoid having to class Ukraine's failure to repay the debt as a sovereign default and to have to appeal in court. 

In November, Putin tabled an offer for Kyiv to repay the $3bn Eurobond due on December 20 over three years at $1bn per year, starting in 2016 and ending 2018. Claiming that the IMF had asked Russia to reschedule the repayment to 2016, Putin said it decided to offer even better terms. Ukrainian Prime Minister Arseny Yatsenyuk rejected the proposal, saying Kyiv could not offer or accept any other terms than those applying to its other creditors.

According to Storchak, silence now prevails over the issue after the IMF stressed that it wants the Russian and Ukrainian authorities to conduct direct discussions.

Timothy Ash, a Nomura strategist in London, reminded in a note that the deadline to agree a restructuring and to avoid a possible hard default scenario is December 7-8. "So the clock is ticking," he underlined.

In mid-October, private creditors voted in favour of Ukraine's $18bn debt restructuring deal, while Russia refused to take part in the vote. The result finalised the country's seven-month marathon aiming to secure its debt restructuring deal with a group of investors. Russia, arguing that the Ukrainian bonds it holds are public not private debt, did not join the restructuring plan.

Analysts say the plan of Ukrainian Finance Ministry regarding the bond is still not clear. "[The ministry] seems to view the absence of contact as advantageous to its goal of postponing the debt's repayment as much as possible," Alexander Paraschiy of the Concorde Capital brokerage in Kyiv said in a note to clients on December 2. "It's also not intimidated by the option to default on December 20."

Paraschiy believes that "a critical event" could occur on December 8, when the status of this debt could be considered by the IMF.

"Only the IMF board's recognition of this bond as 'official' debt (which should be treated separately from other Eurobonds) will open up an opportunity for Ukraine's government to start negotiations with Russia," the expert noted. Without that, Ukraine is limited in offering to Russia any restructuring terms better than what was offered to to private bondholders, Paraschiy added.

Because the IMF is postponing the disbursement of next tranches to Ukraine under its $17.5bn support programme agreed in March, Ash at Nomura said "it is difficult to see how Ukraine could meet the $3bn payment without the risk of causing pressure on the balance of payments and the exchange rate".