Ukraine halts $3 billion debt payment to Russian Federation; court fight expected

Ukraine’s restructured dollar-denominated bonds stayed lower, with the yield on the debt due 2025 rising two basis points to 9.65pc by 12:05pm in Kiev.

Russian Federation has stepped up the economic pressure in recent weeks, moving to impose trade restrictions on a wide range of Ukrainian products from the first of the year, when a trade deal between Ukraine and the European Union is slated to take effect.

The moratorium will be in place “until the acceptance of our restructuring proposals or the adoption of the relevant court decision”, Mr Yatseniuk told his government.

Russian Prime Minister Dmitry Medvedev has ordered the Cabinet to get lawyers ready to prepare to fight Ukraine in court over its $3 billion debt to Russia. It follows Russian Deputy Finance Minister Sergey Storchak reiterating a threat to sue hours after Ukraine pulled the plug on repayments.

“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.

In addition, repayment of $507m of Ukrainian commercial debt held by Russian banks will also be halted. December 20 is the deadline for Ukraine to pay the debt, which is followed by a 10-day grace period.

“We’ve repeatedly said to Ukraine’s authorities that implementation of the economic part of the association with the European Union affects our interests and creates risk of economic instability for our country”. Ukrainian leaders have accused Moscow of sending troops and weapons to the east, a claim the Kremlin has denied.

In November, Russian President Vladimir Putin proposed a debt restructuring, saying Moscow would be willing to agree to payments of $1 billion a years between 2016 and 2018.

Kiev has refused to meet Sunday’s due date on a $3 billion (€2.77 billion) loan that Moscow gave to authorities led by former Ukrainian president Viktor Yanukovich in December 2013, when they were rocked by huge street protests.