Ukraine Expected to Default on Debt to Russia

Arseny Yatseniuk, the prime minister of Ukraine, has announced that his country will be halting payment on $3.5 billion worth of government bond debt to Russia. The eurobond is set to reach maturity on Sunday, at which point Ukraine will officially default on its debt obligations to Russia.


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The stoppage of payment, according to Mr. Yatseniuk, will remain in force until Russia agrees to a restructuring program that would allow Ukraine to make an up-front payment on a percentage of the debt and repay the remainder of the principal amount later. A similar deal to this has already been reached with commercial creditors in Russia. The Russian government, however, has previously stated that the government debt must be paid in full.


Ukraine, invoking the terms a bailout it received from the International Monetary Fund, has taken the position that total repayment of the Russian loan would run contrary to an existing restructuring agreement it had already entered into with other creditors. While the IMF has formally agreed that the Russian loan is a bilateral loan that is not subject to the agreements made by commercial creditors, it has also suspended a part of its normal guidelines that would have required Ukraine to pay the debt in full in order to maintain its agreement with the IMF.


Russia has stated that if the loan, which was part of a 2013 financial agreement struck with then-president Viktor Yanukovych, defaults, it will pursue legal action against Ukraine. The original eurobond agreement included a provision for just such a circumstance, naming the United Kingdom as the neutral third-party country in whose courts any lawsuit would be tried. Ukrainian officials have said that they are prepared for legal action on Russia’s part and that Ukraine will comply with a court ruling ordering them to repay the loan according to the original bond agreement.




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