Ukraine defaults on $3bn bond payment to Russian Federation

Ukraine stands no chance to win lawsuit on its $3 bln debt to Russia, Deputy Finance Minister Sergey Storchak said on Friday.

Yatseniuk also said Ukraine would cancel payments on $507 million of Ukrainian commercial debt held by Russian banks. On Thursday, Ukraine announced that it can not make the bond payment without violating a debt-restructuring deal with other global creditors.

In August, Ukraine agreed a restructuring deal with a creditor committee led by Franklin Templeton (which owns about $7 billion of Ukrainian bonds) providing a 20 percent write-down on about $18 billion worth of Eurobonds. “An out-of-court restructuring is possible, but the only way to negotiate is to negotiate directly. We are prepared for court action from the Russian side”, he said in a government meeting. But the Fund has also changed its policy to allow it to keep lending to countries in arrears on repayments of such debt, effectively throwing Ukraine a borrowing lifeline.

Moscow has said it will take Ukraine to court if it fails to pay on time.

In November 2015, Putin said Russian Federation was ready to restructure Ukraine’s debt in case the United States, the European Union or any big worldwide financial institute gave its guarantees to Russian Federation.

“We never said there weren’t people (in Ukraine) who work on resolving various issues there, including in the military sphere”, Putin said during his annual news conference.

On Wednesday, Russia said it would suspend a trade pact with Ukraine that would exclude the country from a free trade zone that includes former Soviet countries from 1 January. On Friday the International Monetary Fund warned that the programme was under threat from apparent rejection by parliament of critical tax amendments and the draft 2016 budget.

Ukraine turned down the offer, saying it can not legally offer Russian Federation a better deal than the one it has negotiated with other debt holders.