Ukraine makes Eurobond coupon payments to Russia

By bne IntelliNews June 22, 2015

bne IntelliNews -


Ukraine has made a $75mn coupon payment on $3bn of Eurobonds held by Russia, a government official in Moscow said on the scheduled June 22 due date, despite earlier threats by Kyiv to default if creditors did not accept a massive reduction in the principal amount owed.

"Yes, everything is fine. I confirm that the payment has been made," said Konstantin Vyshkovsky, the head of the Russian Finance Ministry's debt department, TASS news agency reported.

Russia bought the $3bn two-year Eurobonds as part of an abortive bailout of Ukraine in December 2013. As Ukraine's new government tries to manage the inherited debts, Russian officials have ruled out any restructuring of the bond, which is ude for redemption this December.

Authorities in Moscow have reminded in recent weeks that they are entitled to use a clause in the Eurobond's terms that enables it to demand early repayment of the full amount if Ukrainian state debt surpasses 60% of gross domestic product (GDP). The Ukraine National Bank said in March that the country’s sovereign and sub-sovereign debt reached 71.5% of GDP at the end of 2014, the first time it had admitted that the threshold was breached.

In view of the breakdown in relations between Ukraine and Russia since 2014, including Moscow's annexation of Crimea and its increasingly evident support of separatist rebels in East Ukraine, the need to service debts to Russia has been a bitter pill for Kyiv's pro-Western government.

"At this time we don't see any such instrument available to us [not to pay on the Russian Eurobonds]," Ukraine's US-born finance minister Natalie Jaresko said on June 19, Interfax reported. "I believe firmly in inter-creditor equity and fair treatment, equal treatment amongst categories and groups of creditors," she added.

Asked whether Russia might block Ukraine's debt restructuring plans, Jaresko said: "Practically speaking, I don't believe that they are in the position to block, but certainly they have ability to complicate things. Any large holder has that ability. And that is indeed something that we have to look at."

On June 17, Kyiv also paid a $39mn coupon on Eurobonds due for redemption in 2016 which are held by private creditors. Kyiv has been holding fractured talks for the past three months with international creditors to restructure around $23bn in commercial debt, with the goal of saving around $15.3bn on debt payments over the next four years. This was initially stipulated by the International Monetary Fund (IMF) as condition for a $17.5bn four-year bailout facility agreed in March. However, the fund recently indicated that it would continue the credit line even if the government defaults on the debts. 

Ukraine is using the IMF funds to replace expensive loans with cheaper loans, while restructuring its commercial debt, Prime Minister Arseny Yatsenyuk said on Ukrainian television on June 21.

"We are doing the same thing with the IMF, replacing high-interest loans with less expensive ones," Yatsenyuk said on the Ten Minutes with the Prime  Minister programme. "The Ukrainian leadership has said honestly to our lenders 'It's time to help Ukraine, Ukraine's debts to private lenders should be restructured'," he said.

However, in a letter on June 22, Ukraine's private creditors  said that no date had yet been set for further talks over restructuring, newswires reported.

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