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Ukraine to default $3 billion bond payment due to Russia. December 20 is the deadline for Ukraine to pay the debt. Legal action is inevitable.
Ukrainian Prime Minister Yatsenyuk said on Friday December 18 his country will not make payments on a USD 3bn Eurobond held entirely by Russia. December 20 is the deadline for Ukraine to pay the debt, which is followed by a 10-day grace period. That effectively means that Ukraine is close to defaulting on the bond. Also the Ukrainian government has imposed a moratorium on the small payment of USD 507m by two Ukrainian companies to Russian banks.
Russia has not reacted yet. Obviously Russia will go to court to defend its interests. IMF confirmed USD 3bn bond is sovereign debt and not private as Kiev had claimed. "The IMF's recognition of the official status of this debt might serve as grounds to improve Russia's positions in court," Russian Ministry of Finance said earlier this week.
Russia refused to participate in a restructuring process with commercial creditors earlier in 2015. Clearly Ukraine will try to write down the face value of sovereign bonds as it was done with commercial debt. However long-lasting and painful negotiations and very likely legal action.
"The default may not affect the IMF bailout as the IMF already relaxed rules and the Fund will not stop its program despite Ukraine failure to repay its debt to Russia. Anyway the news may weigh on UAH",says Nordea Bank.
